MP’s Back “Brexmas” Elections
The ongoing Brexit saga has taken yet another twist this week, once again adding confusion for traders. Following the EU’s announcement that it has approved the UK’s request to extend Brexit until January 31st, UK parliament last night voted in favour of holding a general election on December 12th. PM Johnson has been pushing for an election since his parliamentary defeats which led to the Brexit extension request though the call was initially blocked by labour. However, with Labour leader Jeremy Corbyn declaring that he is now satisfied a “no-deal” Brexit is off the table, support was eventually given to the election call.
Campaigning has begun immediately with Corbyn writing on Twitter that the election represents “a once-in-a-generation chance to rebuild and transform our country.” Jo Swinson, leader of the Lib Dems, struck a similar note, writing on Twitter that the election will "decide the future of our country for generations. It is our best chance to elect a government to stop Brexit."
Swinson went on to say “The Liberal Democrats are the strongest party of Remain and will be standing on a manifesto to stop Brexit by revoking Article 50.This country deserves better than Boris Johnson and Jeremy Corbyn, and I am excited to take our positive, pro-European, liberal vision to the country as the Liberal Democrat candidate for Prime Minister.”
News of the election has confounded some, however. This election will mark the third UK general election in just four years, which is atypical given that the usual frequency is one every four years. Furthermore, this election means that the UK public has been asked to vote in some sort of election for each of the last five years.
The elections create further risk around Brexit. As it stands, the three main parties are essentially campaigning on the following grounds:
- Conservative party wants to push ahead with Johnson’s deal or leave via a no-deal Brexit
- Labour party is in favour of holding a second referendum on the current Brexit deal which would mean voting whether to back the deal or whether to stay in the EU
- Liberal Democrats want to cancel Brexit altogether by revoking Article 50.
Potential Outcomes
In terms of assessing the most likely outcome of these elections, the task has grown increasingly difficult. Recent polling suggests that the Conservative party are still the favourites though with only around 30% of the vote, it would likely once again be a coalition government. Given that the other two main parties are opposed to Brexit a coalition with either the Lib Dems or Labour would likely lead to further delays to Brexit as MPs wrangle to agree a suitable deal.
A Labour – Lib Dem coalition is an outside scenario at this point though if we did see such a government Brexit would almost certainly be put to a second referendum which increases the chances of Brexit being cancelled.
However, there is another scenario which could emerge and would actually raise the risk of a no-deal Brexit. Nigel Farage’s Brexit Party made significant and unexpected gains in the MEP elections earlier this year. Farage’s party have done well to capitalise on the dissatisfaction that many traditional Tory MPs feel towards the Conservatives over their handling of Brexit. However, it is not yet clear whether Farage’s party will field candidates for each seat which, if they did, could topple the Tories.
As its stands, the most likely outcomes is another Conservative-led coalition government which would ultimately lead to Johnson’s Brexit deal being passed which should keep GBP supported. Traders should be aware of the likelihood for volatility heading into the elections as we start to receive polling updates and candidate headlines.
Technical & Trade Views
EURGBP (Bearish, while.87 holds)
From a technical and trading perspective. Recovery in EURGBP has been weak and in line with longer-term VWAP, this move is likely to extend lower. Worth noting, momentum studies flag the risk of a short-term correction higher and I will be watching any retracements into the .87 – .8810 level for short opportunities for a continuation down to .84
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!