The UK Supreme Court will rule on the government’s Brexit plans. The case is less of a market focus than the original hearing in November, but could be just as important for the Brexit process.
The market participants are widely expected to uphold the original High Court decision and reject the government’s appeal.
Deutsche Bank reported Scenarios and market implications (assuming government loses appeal).
Scenario 1: Government loses appeal but wins parliamentary vote on narrow Brexit Bill – 50% probability
Scenario 2: Government loses appeal but loses parliamentary vote on narrow Brexit Bill. Snap general election then most likely outcome. – 20% probability
Scenario 3: Supreme Court rules that devolved authorities must be consulted before triggering of A50 or 1972 EU Communities Act repealed or ECJ opinion consulted – 30% probability
In the case of scenario 1, EURGBP likely to drift back to 0.85 and 0.8450 levels.
In the case of scenario 2, political uncertainty will push the EURGBP back to 0.88/0.8850 levels.
Last week’s Minister May speech favors to GBP against EUR. Following today’s outcome market participants will get a greater clarity to re-positioning GBP against EUR. GBP continues the rally against the USD and EUR.
Deutsche Bank- Our base case remains that the government will lose the Supreme Court appeal but succeed in introducing a narrow bill enabling a triggering of Article 50 by the stated end-March deadline.
In EUR and GBP, leveraged funds trimmed net shorts in the former while adding net shorts in the latter currency. Meanwhile, asset managers extended EUR net longs by a fifth, while trimming GBP net shorts by one-tenth- Deutsche Bank .
Earlier this week, Prime Minister May confirmed our expectation n that the UK will seek to leave the single market.
The main event is the Supreme Court ruling on Tuesday. Prelim GDP q/q basis on Thursday.
GBP: Q4 GDP Advance Est. (Jan 26, 09:30 GMT)
UBS expects the advance estimate of Q4 GDP growth to drop to 0.3% q/q (0.6% prev, 0.5% cons.) and to 1.9% y/y (2.2% prev., 2.1% cons.). The UK’s economic growth will likely slow down significantly over the next two years on the back of weak consumption and investment, in our view.
Deutsche Bank- Q4 economic indicators such as the PMI’s have been solid in Q4 and the NIESR GDP estimate suggests GDP grew by 0.5% q/q in Q4, which is also our expectation (2.1% y/y). That said, a downward correction of the large increase in inventories in Q3 is a downside risk to our forecast.
The cross rejected at 20Wsma and settles below 20Dsma on Monday’s session. Immediate support zone remains between 0.8560 and 0.8530 below these 0.85 and 0.8450 exists. The 200 daily moving averages find at 0.8400 and earlier swing lows finds between 0.8330 and 0.8300 levels.
Potential resistance seems 0.8650/0.8670, 0.8730 and 0.8770/0.8800.
Last week high seems at 0.8860 and multiple monthly resistances seem at 0.8815.
Ahead of the Supreme court ruling, the cross trading range remains between 0.8450 and 0.8650. Overcoming weeks, trading range remains between 0.84 and 0.8850 levels.