According to Evening Standard, the moment could come when U.K. Prime Minister Theresa May makes a statement in the House of Commons on March 14. According to press, May is ready to move if a bill empowering her to write to Donald Tusk invoking Article 50 is passed on Monday night. Standard say that if May doesn’t act during the week, her next window of opportunity won’t come until March 27.
So what to expect if May pulls Brexit trigger? It’s definitely a highly awaited moment. Actually the end of March is May’s deadline to launch a Brexit but there is no consensus on what it means for markets. The volatility has been recently calmer. Major banks issued notes concerning the event.
According to BofA, sterling hasn’t fully priced Article 50 and beyond. Risks to the currency remain to the downside on a disruptive start to negotiations. Bank adds that they see a dip before a recovery into the end of the year. Bank of America’s preferred strategy is to bet on greater swings in the pound, rather than its direction. It has recommended buying three-month forward volatility, a measure of expected swings, with a target for it to gain around 20 percent from current levels. Societe Generale SA also sees opportunity in options, as it expects two-month implied volatility to pick up if cable falls below $1.20.
JPMorgan Chase & Co. is also bearish. Bank recommended on March 3 selling the pound against the dollar at 1.2250, with a stop at 1.2530, as it sees the currency as the most over-valued in the Group-of-10 and investor confidence as vulnerable.
Morgan Stanley is more sanguine and bank thinks the triggering of Article 50 shouldn’t come as a major surprise. There may be many Article 50-related news headlines in the coming weeks but MS believes that a lot of the negativity around Brexit-related economic data weakness is already in the price. MS initiated a long sterling versus the euro trade recommendation last month and is targeting a move to 0.8000, as it sees political risks in the euro zone remaining high.
GBPUSD has significantly dropped after a breakout below the major support at 1.24, we see some bullish signals and a leg higher is likely, but one cannot exclude a further drop and a test of the crucial medium term support area at 1.20, source: xStation5
EURGBP has moved within a consolidation, price has broken above first short-term resistance around 0.8670. There is a forming evening star patter, if some bearish momentum occurs, we could see a leg lower, source: xStation5
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