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The first trading day began quite actively. The main currency pairs showed atypical for Monday volatility, reflecting the general nervousness in the market. This behavior is understandable because traders are worried about at least two factors. First, the slowdown of the Chinese economy and second, the historical vote on Brexit to be held tomorrow. And if the news from China only confirmed the trend of the last few quarters, the prospects for the "divorce process" are extremely uncertain, unnerving traders.

First of all, it is worth noting that the Friday dynamics of growth of the American currency did not receive its continuation, at least at the start of trading on Monday. The dollar index behaves no longer as confidently as at the end of last week, and dollar pairs show contradictory dynamics. All this confirms the assumption that market participants only fixed profits at the end of the five-day trading period, while there was no talk of large-scale restoration of the greenback. This version is consistent with the general fundamental background regarding the US currency. The Fed representatives continue to voice the "pigeon" position, the shutdown beats the historical record for its duration, and inflation continues to slow. Therefore, the dollar so far can only rely on temporary bursts of interest, while the overall fundamental picture for this currency remains negative.

Exchange Rates 14.01.2019 analysis

In the context of the pound/dollar pair, the behavior of the American currency does play a secondary role. Here, Brexit is still in the first place, especially on the eve of tomorrow's vote. However, it is impossible to speak about the voting on January 15 with confidence. Firstly, all previous events in the British Parliament suggest that May cannot count on the absolute support of her party members. Secondly, the European Union has not yet given clear signals about the provision of legal guarantees regarding the terms of the special regime on the Northern Irish border. Thirdly, Theresa May will give a "special address" at the parliament this evening (at about 4:30 pm London time). All that is known is that she will speak on the subject of Brexit, but it is not known in what particular direction. She will either try again to convince the deputies of the need to implement the "soft" scenario on the achieved conditions or will postpone the voting date again.

Literally today, there were rumors in the British press that Brussels would approve the postponement of Brexit from March 29 to a later date, if only the corresponding offer comes from London. For this, an extraordinary EU summit will be convened, where the parties will agree on a new "deadline", approximately this will be either July or September. Let me remind you that the European Court at the end of last year legally substantiated such a scenario, allowing the British to withdraw the "application for withdrawal". In other words, now everything is in the hands of the deputies of the House of Commons. If they vote to postpone the exit of the country from the EU, no one will interfere with this.

It should be noted here that such a scenario can be beneficial for both the government and the opposition, above all, laborites. The latter has been carrying out the idea of extraordinary elections for more than one month in order to realize Brexit on their own terms. So, yesterday, the head of the Laborites, Jeremy Corbyn, said that they are preparing to vote on the question of confidence in the government of May. According to him, it will take place "very soon." He also said that in the event of early elections, the timing of negotiations between London and Brussels will need to be extended. With regard to the holding of a second referendum, Corbyn noted that his party does not exclude such a scenario, but only in the case when "all other options are not viable."

Exchange Rates 14.01.2019 analysis

Thus, the Brexit postponement is a very real chance for GBP / USD traders to avoid a volatility storm with a disastrous vote on this issue. However, May can take the lead in advance and independently declare the initiation of the transfer of the "X-hour". Although earlier she categorically rejected such an idea.

I note that earlier, GBP / USD traders had a negative attitude to the idea of postponing Brexit since in this case, the period of uncertainty is actually extended. But in this case, you have to choose "of two evils", so this scenario will positively affect the positions of the pound. However, trading a pair of pound/dollar is still risky, as traders will be extremely emotional to respond to the speech of May and the subsequent possible decisions of the British Parliament. It is almost impossible to predict the price direction due to the unpredictability of the situation as a whole. Therefore, a pair of GBP / USD remains a "dark horse", which should be treated with extreme caution.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Performed by Irina Manzenko,
Analytical expert
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