The British currency paired with the dollar, continues to update local lows, approaching the base of the 20th figure. The extremely weak PMI report in the UK manufacturing sector has only reinforced the negative fundamental picture, but Brexit remains the main driver of the downward movement or rather the prospects for the implementation of the "hard" scenario. Boris Johnson's team leads an inventive lead game, forcing opponents to make hasty decisions.
Although the main political battles in the House of Commons are still ahead, investors have little faith in the positive outcome of the battle, which the downward dynamics of the British currency eloquently testifies to this. Nevertheless, despite the pronounced bearish trend, it is worthwhile to wait for a bit in short positions of the GBP/USD pair today. Indeed, the first session of the House of Commons of the season will be held today in Britain. The rhetoric and possible actions of deputies can provide short-term support to the pound. This fact should be taken into account -at least when opening orders on GBP/USD pair. Whether parliamentarians will eventually be able to "defeat" the odious prime minister is an open question but the very fact of opposition will certainly support the British, at least in the short term.
Judging by the chaotic news background, the events will unfold quite rapidly. Firstly, the deputies of the House of Commons have very little time to make key decisions. As you know, the queen supported Johnson's initiative to suspend parliament. Therefore, on September 9, members of the House of Commons will be forced to leave again on vacation until mid-October (while Brexit is scheduled for October 31). Only a few days remain, during which the majority of deputies should take a consolidated position in order to block the prime minister's intentions to withdraw the country from the EU without a deal.
But this is the main problem of the opponents of the "hard" Brexit. On the one hand, Johnson does not have his own parliamentary majority loyal to the current government. He can count on 100-150 conservative deputies from among successive "hawks." On the other hand, it is far from the fact that the Tories will support the legislative initiatives of the Laborites, in particular, on the creation of an interim government of "national unity." In turn, the opposition is also not able to make independent decisions due to the absence of a majority in the House of Commons. They need the support of conservatives from among the centrists, who are also many, judging by the results of previous votes regarding the prospects of Brexit. The Conservative Party has already warned their party members in parliament: "who will support this initiative, will be expelled from the party and accordingly will not be re-elected. " Nobody knows which way the scales are leaning. Thus, the intrigue in this matter remains, which will be resolved in the coming days (and possibly today).
Boris Johnson, speaking late yesterday after an emergency meeting of the Cabinet of Ministers, said that under no circumstances would he ask Brussels for another postponement. At the same time, he did not announce early parliamentary elections, contrary to the numerous rumors that were discussed yesterday in the British press. However, judging by his rhetoric, the parliament is on the verge of re-elections and the last straw on this issue could be a law obliging the government to prolong the negotiation process. According to the prime minister, this step of the parliament "will undermine London's position in negotiations with Brussels" as Europeans will not take British intentions seriously. Obviously, if the deputies still take this step, Johnson will dissolve the parliament and call for re-election.
But it is worth noting here that such a scenario is unlikely to support the British currency - even if the elections are scheduled before October 31. Judging by the latest ratings, the Conservative Party can only strengthen its position by gaining an independent majority in the House of Commons (now they are burdened with a coalition alliance with unionists). So, according to the latest YouGov polls, conservatives still have a confident chance of winning. After joining Johnson and his confident, consistent and correct (from the Tory point of view) actions in relation to Brussels and Brexit, the party's rating increased significantly. According to sociologists, 33% of Britons are ready to cast their votes for the Conservative Party, whose leader is Johnson (under such a condition). Another 22% of respondents would support labour, 21% - the party of liberal Democrats. Thus, re-elections can only increase the likelihood of Brexit's tough, because if the next parliament will take a majority loyal to Johnson conservatives, then no one will stop him.
In other words, the current composition of the House of Commons may block the country's exit from the EU on October 31 but will not be able to resolve the situation as a whole. Therefore, in the long run, the pound will still remain under significant pressure. Judging by the British press, the idea of creating a government of national unity does not find wide support among parliamentarians, especially when it comes to the fact that the interim cabinet will be led by Corbin. Therefore,within a few days until September 9, parliamentarians can implement a "minimum program" to block the hard-line Brexit on October 31 and declare a vote of no confidence in the government, after which, they will "submit" to the re-election.
Given the above ratings of conservatives, this scenario will put additional pressure on the pound. Although in the short term, the British can get support due to the possible extension of the negotiation process. To summarize, it is worth noting that short positions on the GBP/USD pair look risky, although technical signals suggest otherwise. But the first day of parliament's work can mix all the cards, provoking a massive price adjustment.
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