UK Prime Minister suspends Parliament! What’s next for GBP?
On Monday 9 September, the House of Commons descended into chaos as UK Prime Minister Boris Johnson suspended Parliament - in what some claim - to try and force through a no-deal Brexit and an early election. The House Speaker, John Bercow, quit in response as MPs threw themselves across his feet to stop him from leaving while other MPs held up posters that read 'silenced' and shouted 'shame on you'. In a day of chaos, political developments have now set the scene for an interesting few weeks for UK markets and the British pound in particular.
In this article, we discuss the UK political situation and what could lie ahead, as well as the possible trading opportunities around these historic developments. Let's get started!
Why was Parliament suspended and what happens next?
Late on Monday 9 September, UK Prime Minister Boris Johnson prorogued, or suspended, Parliament for more than a month. With the UK due to leave the EU on 31 October it's been a hugely controversial decision. While it is common for the government to suspend Parliament before the Queen's speech - which sets out the government's agenda, previous Prime Minister Theresa May allowed parliamentary sessions to run far longer than normal given the current Brexit crisis.
However, the opposition party and even some members of Boris Johnson's own party have claimed he is only shutting down Parliament to stop any further debates on Brexit and to just run down the clock for the UK to depart with no-deal on 31 October. The Speaker of the House John Bercow - whose role is to be impartial - quit over the "blindly obvious" attempt to limit debate over Brexit.
The Prime Minister has repeatedly insisted he will allow the UK to leave the EU without a deal on 31 October. The majority of lawmakers are opposed to this idea and have been working to block it. In fact, new legislation which was granted royal assent on the same day means the Prime Minister is now forced to seek a delay in Brexit until 31 January 2020 unless a deal or no-deal exit is approved by MPs by 19 October.
According to BBC political editor Laura Kuenssberg, efforts are already underway to examine ways of getting around it. This is because Boris Johnson also lost his bill to start an early election before 31 October, as the opposition party Labour and other parties such as the SNP, the Liberal Democrats, the Green Party and the Independent Group for Change said they will not back an election until a no-deal Brexit bill was put in place first.
The key Brexit dates you need to know about
- 10 September - Parliament suspension begins
- 14 October - MPs return for Queen's speech
- 17 October - EU leaders meet for final council summit before Brexit
- 19 October - Deadline for a no-deal bill to pass
- 31 October - Current Brexit date
It is certainly going to be an interesting few weeks for UK markets and the British pound as the current Brexit deadline draws ever closer. Let's take a look at how the British pound has fared so far and what could lie ahead.
How to trade the British pound over Brexit
The British pound (GBP) can be traded against a wide variety of other currencies such as the Euro, US Dollar, Canadian Dollar and more. However, it is the British pound against the US Dollar (GBP.USD) which is showing some interesting technical chart patterns.
Source: Admiral Markets MetaTrader 4, GBPUSD, Monthly - Data range: from Dec 1, 1997, to Sep 10, 2019, accessed on Sep 10, 2019, at 13:15 BST. - Please note: Past performance is not a reliable indicator of future results.
In the long-term monthly chart of GBP.USD, it is clear to see the long-term downtrend and the dominance of sellers in the currency pair. What is most interesting to traders is the rejection of the blue horizontal support line which is in line with the low of October 2016, just a few months after the Brexit vote.
It seems as though not as many sellers are willing to hold on to their short positions at this price level. Perhaps it is the efforts of the opposition parties to block a no-deal Brexit, the possibility of a delay in Brexit, or the possibility of Boris Johnson going back to Theresa May's withdrawal agreement which still keeps the UK tied to the EU in terms of trade. Either way, the market is suggesting it is not as bearish as it once was.
Of course, the rejection of the level could just be long-term short players exiting the market to bank their profits before such high risk and uncertain outcomes regarding Brexit and a general election. However, the weekly chart has also formed a bullish price action pattern called an engulfing candle which some traders will use as a reason to initiate long positions.
The bullish engulfing candle price action pattern simply involves a candle low moving below the previous candle low but then rallying higher to break above the previous candle high and close as a bullish candle at the end of the time period. It represents a significant shift in sentiment from sellers to buyers.
Source: Admiral Markets MetaTrader 4, GBPUSD, Weekly - Data range: from Aug 7, 2016, to Sep 10, 2019, accessed on Sep 10, 2019, at 14:15 BST. - Please note: Past performance is not a reliable indicator of future results.
In the above weekly chart of GBP.USD the yellow boxes showing examples of the bullish engulfing price action pattern. While in some cases the market did not continue to move higher, there are more instances where it has done so. Could this price action pattern start the beginning of a major push higher in GBP.USD? More importantly, do you have access to the right tools to trade it?
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