Pound places a small premium on control

Sterling longs spy another short-lived opportunity

Monday’s late-night parliamentary drama buoyed the pound to as high as $1.3261, its best since last Wednesday with a more than one-week top against the euro. With few fresh developments expected ahead of  Wednesday a slower agenda helps stabilise sentiment.

Of course, febrile speculation continues. But the effect of Parliament “taking control” is concentrating minds– particularly at the pro-Brexit end of the spectrum.

• Leader of the Eurosceptic ERG group Jacob Rees-Mogg tweeted that he now believes the choice is between Prime Minister Theresa May’s deal or no deal. As a frequent proponent of the latter (for which a parliamentary majority is lacking) he seems concerned about a third option – No Brexit
• Theresa May’s office noted she aims to “engage constructively” with Brexit options
• An official of Ireland’s DUP told Sky News that "A long extension…which would mean a change of leader and a different approach” is now favoured

It’s as yet unclear whether softer Brexit prospects justify rebels running scared and their apparent retreat may not last. The obvious risk is that indicative votes fail to break the deadlock. Leadership talk also hangs in the air. If a contest materialises, it heightens risk of a hard-liner or an election that may bring Labour to power. As such, underlying market sentiment reflects continuing deep uncertainty.

• Cable has flipped back topside of its 100-hour moving average but that gauge is still falling
• Short-dated option demand remains elevated
• The 10-year/2-year gilt yield curve flattens to another 2½-year low after Monday’s
• Domestically focused FTSE 250 bounces 0.8% but remains at its lowest since February

Cable’s chart shows its latest expansive phase is already over. The pair again forms the thinner end of a short rising wedge. Like the last, it’s well within the confines of the $1.338-$1.30 range seen since mid-March. Consequently, the logical next direction after the pattern breaks, is lower. Assuming Brexit fog lingers, but doesn’t perceptibly worsen, early $1.30s remain the downside target.