GBP/USD. Johnson's Plan B and the positive Irish meeting

The news background regarding Brexit's prospects is changing with kaleidoscopic speed. Before the pound could react to the verdict of the House of Lords, traders again came under pressure from the rhetoric of the French foreign minister, which cooled GBP/USD bulls. Today, the fundamental background again contributes to the British currency's growth - already thanks to statements by Boris Johnson. Although all the fundamental factors listed above have a "short shelf life", it is necessary to dwell on each of them in more detail.

Last Friday night, the House of Lords of the British Parliament approved a bill requiring Johnson's cabinet to ask Brussels for another postponement of the country's exit from the EU. It is noteworthy that, contrary to various assumptions, this bill was approved in the final third reading without a vote - members of the Upper House of Parliament did not introduce a single (!) amendment to it. Although some political analysts have warned that the House of Lords and the House of Commons can "play table tennis" making endless changes and sending each other a draft of this law. But the Lords showed amazing unity in this matter, as it managed to do so in just a few days. Now the bill has gone through all stages of parliamentary consideration, and will gain the force of law after the queen signs it (it is expected that this will happen today or tomorrow).


But the optimism of the traders was offset by the comments of the head of the French Ministry of Foreign Affairs, who questioned the feasibility of another Brexit delay. According to him, the European Union is not going to grant Britain a deferment "every three months", especially amid the impasse of the British parliament. Jean-Yves Le Drian recalled that the House of Commons opposed both the "hard" scenario and the deal approved by the EU countries.

This thought was picked up by Boris Johnson. He in his own way interpreted the above law, approved by the House of Lords. According to him, the law will only matter if London is offered (!) a delay, but if such a proposal does not follow, then Johnson will not be able to fulfill the requirements of the adopted law. In addition, as British journalists found out, the prime minister intends to convince the EU not to agree to a new delay by sending a corresponding appeal to Brussels. A harsh statement by the French foreign minister was evidence that this scenario could well come true. Paris even declared that it could veto the EU's decision to extend the negotiation process - if London doesn't present "convincing arguments regarding the expediency of this delay".

In addition, according to analysts, Boris Johnson can use the current situation to his advantage, provoking the Parliament to dismiss him, calling for an early election. Let me remind you that last week the prime minister initiated this issue, however, MPs did not support his idea of re-election. The members of the House of Commons primarily wanted to legislatively block the hard Brexit on October 31, and then consider the issue of early elections. But if Johnson's team makes deferring Brexit legally impossible, the House of Commons will have no choice but to re-election. The implementation of this scenario will be the victory of the current prime minister, given the current rating of the Conservative Party. In this case, Johnson will only strengthen his position in Parliament, which will allow him to realize his political ideas - including regarding the prospects of Brexit.

Thus, a possible retaliatory move by Boris Johnson did not make it possible for the British currency to continue an offensive throughout the market. The GBP/USD pair fell to 1.2230 today in the morning, with the clear intention of entering the area of the 21st figure. But the pair turned sharply and jumped by almost 150 points at the beginning of the US session. Market participants reacted to the outcome of the meeting of the prime ministers of Britain and Ireland. And although there are still no definite results, the rhetoric of the parties inspired GBP/USD bulls - traders again had a ghostly hope for a deal before October 31.

However, this hope is too illusory, and the reaction of traders is too emotional. Boris Johnson once again stated that he wants to achieve a deal and believes that this can be done before October 18. He called the hard Brexit version a "failure", although he did not rule out its implementation. The British prime minister also assured that under no circumstances would London allow a tight border between Ireland and Northern Ireland. Summarizing the outcome of the meeting, Johnson noted that he and his Irish colleague had found "common ground on a number of issues." At the same time, politicians unanimously stated that a breakthrough in the negotiations has not yet occurred and significant differences remain.


Let's face it - this is a rather dubious reason for corrective growth. In addition, it is worth noting that today, members of the House of Commons will re-vote for holding early elections (the discussion and voting process can keep going until late in the evening or at night). The results of this vote can provoke strong volatility for the pair, therefore, it is now impractical to open trading positions in one of the parties. By the way, parliamentary speaker John Bercow has already announced that he will resign if Parliament votes for re-election. This fact exerted short-term pressure on the pair, but then the bulls regained their positions.

In my opinion, the corrective growth of the pair will be short-term. London and Brussels are still at different poles regarding the prospects for backstop and other equally important Brexit issues. Today's "constructive meeting" of Johnson and Varadkar is unlikely to have any far-reaching political consequences. As soon as this fact is voiced by one of the EU leaders, the market will recall the "plan B" of the British prime minister, who intends to legally circumvent the action of the Brexit deferment law. In this case, the pound will again be under significant pressure, and will return to the middle of the 21st figure against the dollar.

The material has been provided by InstaForex Company -