Sterling dazed but unfazed by Coxs bombshell

Tuesday brings another reminder to traders that Brexit complacency is inadvisable.

Short-term sterling implied volatility has surged to end-January highs, massively destabilising the spot. And the pound’s volatile day will continue. Tonight’s vote is set to go ahead as planned. Perhaps the “legally-binding” aspect of Brussels’ new undertakings lulled some participants into a feeling of greater security despite past experience. In the event, the long-awaited opinion from Britain’s most powerful politician—on Monday—Attorney General Geoffrey Cox—was a bombshell. The backstop provides "no internationally lawful means of exiting".

Worth noting:

• Options data show far lower expectation of wild swings beyond the one-month mark. This means the market remains fairly relaxed on Brexit prospects in coming months; strongly backing the notion of a delayed Brexit; somehow, when the miasma of uncertainty thins
• Verbal comments from Cox in the Commons drew further poison from his written opinion, lifting sterling off lows. For instance: “Ultimately the UK has a good right to withdraw from any treaty as a sovereign state”

But expect trading to be more circumspect into the 7.00pm GMT vote on the government’s Brexit deal. Even at its ebullient best, cable again respected 20^th September’s $1.32982 high as resistance. Tuesday’s top is $1.3264, below Monday’s. Still, a wide up-channel confirmed in December is intact; more implied support. Monday’s $1.2960s lows are also untested so far. Note $1.2968 on 22^nd Feb too. If all these go, mayhem of greater intensity may lie below.