GBP/USD trades just above the 1.2900 handle ahead of European trading

The pound is still feeding off some positive vibes from talks of a no Brexit outcome and a possible extension to Article 50 ahead of the meaningful vote in parliament later. The vote is expected to take place approximately around 1900 to 2100 GMT and Theresa May is very much expected to be on the losing end of that.

In terms of a setback for the pound, it'll be a question of how many votes does Theresa May lose by. The margin of her loss will affect sentiment upon the outcome and as it stands the view is that she will lose by about 50-60 votes. Anything closer will help to provide further relief to the pound while anything worse may exacerbate the downside knee-jerk reaction of the result.

In the aftermath, things are less certain as we could either see May choose to present another proposal with some changes or possibly push forward with a no-deal option. The latter decision is the more difficult path as parliament has more of a say in blocking the outcome from materialising now but that would push things into the "paralysis" scenario which May mentioned yesterday.

Further complicating the matter is that Labour could also be tabling a confidence motion against the government and that would be another setback for the pound in the near-term. However, I reckon Labour won't be able to sweep home the needed votes to topple May and her Tory party so any setbacks arising from this rhetoric will be short-lived.

For the pound, markets are very much aware that May will lose when it comes to a vote later so I would expect any knee-jerk reaction to the downside to be counteracted rather quickly; provided that there isn't a push towards a no-deal option right away. But when it comes to politics, there's just so much uncertainty in what may possibly happen so that itself could weigh on the pound for a bit too since Labour could challenge for an election.

As for technical levels to look out for, cable is now hugging the 100-day MA (red line) @ 1.2893 and that will be a key level to consider in trading later. There is also resistance around 1.2925 and 1.2958 before the 1.3000 handle comes into play. Those will be key upside levels to watch out for in the event that the pound catches a bid.

As for downside levels, watch out for near-term support close to 1.2850 before further support is then seen at 1.2820 and then at the 100-hour MA @ 1.2808, near the 1.2800 handle. Thereafter, further support is seen at the 200-hour MA which sits at 1.2758 currently.