UK Supreme Court Decision: Anti-Climactic?

The UK Supreme Court will hand down its ruling tomorrow on the government’s appeal of a High Court decision that recognized the
right of Parliament to vote on triggering Article 50. 
Initially, this
was seen a
deal.  Parliament is not so keen
on the hard Brexit (clean break), so the potential of a greater role for it
suggested a softer exit, which was understood to be sterling supportive.

However, time marches on, and Prime Minister
May appears to have effectively stolen the thunder of the decision and framed
the issue. 
Arguably, she reduced the market
significance of the Supreme Court ruling by recognizing Parliaments right to
vote on the final agreement.  She framed the issue by indicating that she
wants a new trade deal with the EU.  

Parliament may hem and haw, but the risk of it
not voting to trigger Article 50 seems slim to none. 
There may be
some efforts to frustrate the vote, like a campaign to oppose to abstain, but
approve the triggering of Article they
will.  The issue is really a
domestic constitutional issue about the role of Parliament.  It is much
less about substance.  

The vote on the final agreement may also be
less than meets the eye.
  If an agreement is struck and Parliament votes against it, there is unlikely to be
sufficient time to negotiate a new agreement.  Assuming the two-year
negotiating period is up, the UK may be forced
out of the EU without an agreement.   The chaos that could ensue
would be laid at the feet of Parliament,
not 10 Downing Street.  

Prime Minister May will finish the week by
going to Washington and meeting US President Trump. 
Many observers
find connections between Brexit and Trump’s election.  Many of the
analogies seem like a stretch, but unlike Obama, Trump supported the UK
decision and has been antagonistic to the EU (as a German mechanism to secure
trade advantage).   While Obama said a free-trade deal with the UK would
not be an important priority, Trump was more sympathetic. 

May might be hoping that Trump confirms this
intent, but the UK cannot negotiate a free-trade agreement as long as it is
part of the EU, which it will be for the next two years.
  Moreover, a
free-trade agreement will take some time to negotiate the bilateral US-Canada
agreement in the second half of the 1980s illustrated (which took three years
from the beginning of negotiations to implementation.  

A week ago, sterling
gapped lower anticipation of May’s speech on Brexit.
  It briefly
dipped below $1.20 for the first since the October flash crash.  It
rallied strongly as May’s speech on January 17 failed to go beyond the
extensive advanced excerpts.  Sterling consolidated
those gains in the second half of last week.  Today it has pushed higher
to reach its best level since December 19.  

The technical outlook for sterling looks
A close above $1.2475 is
to confirm.  Last week’s gap looks like an exhaustion
gap.  The subsequent price action is bullish.  There appear to be two
dominant patterns and both of which suggest potential toward $1.28.  

First, a potential head and shoulder pattern
may have been carved
The left
shoulder was in late December and early January near $1.22.  The head was formed last Monday and Tuesday.  The
right shoulder was the lows from the second half of last week around
$1.2255.  The neckline is $1.2430.  

The second pattern is a potential flag
  The pole was last the January 17 rally (sell the rumor, but
the fact) on May’s speech.  The flag itself was the last three
sessions.  Flag fly at half-staff.  
The $1.28 area that both patterns project toward corresponds to a 61.8%
retracement of sterling’s decline from the early September high near

The cross against the euro may absorb some of
the pressure
.  A break of GBP0.8580 would suggest a move to GBP0.8515
initially, but probably back toward GBP0.8435, if
note the early December low near GBP0.8300.  


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