Deutsche takes profit from their EUR/GBP short recommendation two weeks ago
The firm went long on the pound (short EUR/GBP) two weeks back after May lost the meaningful vote in parliament and Labour called for a no-confidence motion to be had the following day. Their rationale at the time was that May would survive the confidence vote and a softer Brexit would come about as a result.
In their words at the time:
"Prime Minister May lost tonight's UK parliamentary vote on her Brexit deal by a larger margin than expected - 432 votes to 202. Notwithstanding, after more than two years since the UK triggered Article 50 to leave the EU and over eighteen months of negotiations, a positive Brexit resolution is finally in sight.
Having lost the vote, Mrs. May said she would be opening up Brexit negotiations to a cross-party approach. In our previous research, we argued that the only way for Prime Minister May to secure a parliamentary majority for her Brexit deal was to secure cross-party backing...
We believe that there remains scope to secure a parliamentary majority for a version of May's current deal, based primarily on a renegotiation of the Political Declaration on the Future Relationship towards a softer form of relationship, to which the EU27 would be accommodating. We would anticipate...that this could take place within weeks."
Now, the firm argues that fresh concerns about the possibility of a no-deal Brexit are causing a bit of rethinking to the pound valuation and they see the quid being more "neutral" for the time being. Thus, exiting their long pound recommendation from 15 January.
"It is more likely the clock runs down to the 29 March deadline, with lawmakers forced into approving May's deal under the threat of a crash no-deal Brexit.
As well as increasing the risk of a crash Brexit by accident, it should not be positive for economic confidence which is already deteriorating due to political uncertainty. We consequently take profit from our short EUR/GBP recommendation from two weeks ago and turn neutral on sterling."
From a technical perspective, the decline in EUR/GBP up until last week fell to test the support from the April 2018 low before rebounding and getting a further boost from the results of yesterday's Brexit amendment votes.
