What happens after Parliament rejects the Brexit deal?
As of now, it clearly seems like Theresa May's current Brexit deal will be rejected by the UK House of Commons due to several controversial aspects within the deal. For the deal to pass, May needs an approval rate of over 50% which is basically a long shot if we dig deep into the numbers.
The parliament consists of 650 lawmakers, out of which 325 members must agree in for the deal to pass. Although May's Conservative Party is the most represented in the House, the 315 seats they hold are clearly not enough.
Plus, news outlets have reported several times that many within May's party are in disagreement with the deal. And of course, lawmakers from other parties within the House have indicated they will not vote in favor of the deal.
Now let us say the deal is rejected, what happens next? Theresa May might either decide to revise the Brexit plan, which will most likely be a difficult feat as she might face opposition from the EU.
Let alone the fact that such scenario will delay the whole Brexit process and lead to an over-extension of the uncertainty surrounding the future of the UK, which is not something positive for the Pound.
Alternatively, May might decide to go for the no-deal option. I won't delve deep into the details of such scenario as this single statement from the Governor of the Bank of England, Mark Carney will summarize it all "A no-deal Brexit would send the pound plunging and trigger a worse recession than the financial crisis".
So what are the technicals pointing towards?
On the daily chart, prices continue to reject and trend below the 13-period moving average indicating that strong bearish momentum remains in place. However, prices are also ranging around a key support level between 1.2660 and 1.2743, which means that the next leg lower will only be confirmed if prices break below the lower end of the support level (1.2660).
Based on the chart below, the break below the mentioned support level will confirm the formation of an ABC pattern paving the way for a drop towards the 1.2200 support level which also coincides with the 1.27 Fibonacci extension.
To strengthen the bearish case, the pair rejected both the 200-period moving average (purple) and the 0.382 Fibonacci retracement before the push lower from 1.3277 to 1.2770.
This analysis has been written by the ADSS Research team.
