We were expecting some quiet optimism that we are heading for a long extension (June 30) as the probabilities of reaching a deal before the April 12 deadline becoming thinner and thinner. We expect a long-term extension could be the negative factor to GBP.

Ahead of European Council meeting on April 10th and April 12th new Brexit deadline, Theresa May has now engaged in talks with Jeremy Corbyn, to try to find a cross-party consensus and break the deadlock.

Here is a gist of what Banks and analysts anticipate.

Danske Bank: Our base case is that the EU will grant the UK a year-long extension with the flexibility to leave earlier if/when the Withdrawal Agreement is passed (75% probability). We assign a 10% probability of a short extension.

Moody’s Analytics: The EU is likely to accept only a long-term transition, conditional on the U.K. participating in the European Parliament elections in May. The U.K. government won’t like it, but its hands will be tied.

UBS: Theresa May’s new plan—to build a cross-party consensus on the options for Brexit—is unlikely to achieve a sustainable parliamentary majority, in our view. Thus, it seems doubtful that the current parliamentary deadlock will not be broken in the near term, which points to a long extension to Article 50.

Data review:

UK manufacturing PMI remained above the 50.0 marks for 32 months in a row, according to the official data reported by IHS Markit whereas the Services PMI settled below the benchmark.

The Manufacturing PMI rose to a 13-month high of 55.1 in March, up from a revised reading of 52.1 in February, the data showed.

At 48.9 in March, down from 51.3 in February, the Services PMI posted below the 50.0 no-change marks for the first time since July 2016.

Data preview:

We will see February UK GDP on Wednesday.

“A drop in service sector activity indicates that UK GDP contracted in March, with the economy stalling over the first quarter as a whole and at risk of sliding into a deepening downturn in coming months “ Chris Williamson, Chief Business Economist at IHS Markit said.

TECHNICAL OVERVIEW

As the daily RSI has been propelling higher and the oscillator is remaining bullish, the risks of a new decline below the 0.8470 have eased for some time. The recent rebound is facing stiff resistance at 0.8650 traced out a double top pattern and failed to handle 50MA overnight. There will need to be a breakout above 0.8650 to envisage an extension of the cross towards 0.8700 and 0.8720.

Support levels are located at 0.8590 followed by 0.8500/0.8470.

The current consolidation theme continues for the next 3-4 trading days.

The flip side, a daily close below the 0.8450 opens the way towards supports around 0.8400 it’s 200MA (Weekly) and 0.8300 its 50MA/100MA (Monthly). Interestingly the weekly RSI has been recovering, and the oscillator turned back to bullish mode. Based on these we could expect a limited leg room in the medium term (3-6 months).

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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