Brexit stakes have risen for both EUR and GBP Brexit stakes have risen for both EUR and GBP Brexit stakes have risen for both EUR and GBP

Brexit stakes have risen for both EUR and GBP

Forex 6 minutes to read
John Hardy

Head of FX Strategy

Summary:  GBP remains volatile as PM May's Brexit agreement dies on the vine, but EUR is another one to watch as the developing crisis retains large two-way risks.

The Brexit deal struck between UK Prime Minister May’s negotiating team and its European Union counterpart is more than clearly dead on arrival and will not clear the hurdle for passage in a parliamentary vote as currently formulated. But what this means for the path from here is far from clear.

Conspiracy theorists would have us believe that May’s team did the best it could with the obstinate EU and was willing to agree to something that they would take back to the UK and show to the EU that it wouldn’t fly. This could then provide some leverage for shifting the EU’s position on key issues to get a better deal through as we barrel toward the March 29 Brexit deadline. Cabinet resignations could be part of an effort at adding “theatre”.

The flip side conspiracy theory is that the EU is hoping (I would argue with bottomless hubris if so) to stand as firmly as possible in hopes that the UK will be disciplined into changing its mind and making “the right choice” via a second referendum, believing that it has the upper hand and the UK would never take the leap into the unknown.

Of course, both theories could be true to a greater or lesser degree and let’s not underestimate how a crisis can motivate further action and change the plot quickly in coming weeks. Also, let’s make no mistake that the EU is playing with fire here – a no-deal Brexit is not only very immediately disruptive for the UK economy, it would likely also throw the slowing mainland EU economy into recession – just ahead of EU parliamentary elections next May. High stakes, anyone?

Alternatively, we can attempt to take the situation at face value and merely ponder whether this will eventually mean a stumble toward a no-Brexit and the path that stumble would take: first a May exit and either a new election or a second referendum or both? Sterling has been sold steadily, but a 2% move is hardly indicative of the potential here and I think the “controlled weakness” with sharply higher implied volatility in the options market is an accurate reflection of the possible paths from here.

I still don’t have any idea how this will turn out, but have a hard time believing that the UK ends up on a path toward “opting in” to the EU again, just as I have a hard time believing that anything resembling this deal will make it through parliament because as Iain Duncan Smith aptly states “Theresa May’s Brexit plan concedes our sovereignty in a way even worse than if we stayed in the EU”.

The Brexit summit is set for November 25 and is the next event risk if May does not resign or is not ousted in the interim. An article from Politico takes a stab at looking how things may develop in the days ahead.

Elsewhere, the market is trying to put an optimistic face for the upcoming Xi-Trump summit at the G20 in Argentina. I am reluctant to trust any noise or signals from the Trump administration or certain Twitter accounts until we have a look at how the meeting goes down. Some sort of truce or détente may be possible here and could yet generate a flurry of excitement and risk-on sigh of relief. But longer term the die is cast as the two great powers will inevitably find themselves at odds with one other. We may not even see any notable breakthrough emerging from Buenos Aires. Trump’s only motivation to make friendly is his apparent barometer of his popularity – the stock market.


The JPY doesn’t know what to do here – it has risen versus EUR and GBP as the market has discounted those currencies on Brexit woes, but offsetting that has been an improvement in risk appetite on hopes that a US-China trade détente is on its way in a couple of weeks. Still, EURJPY trades heavily and a view lower encapsulates multiple angles on the FX market here: the risk of a hard Brexit, the re-aggravation of the Italy budget showdown and possibly even the US-China relationship souring again.

The technicals aren’t particularly compelling but it has broken down below the daily and weekly Ichimoku clouds and a break below 125.00 could set something larger scale in motion to the downside in coming weeks.
EURJPY (source: Saxo Bank)
Economic Calendar Today (all times GMT)

• 08:30 - ECB President Draghi to Speak
• 10:00 - Eurozone Oct. Final CPI
• 13:00 - ECB Weidmann to Speak
• 13:30 - Canada Sep. Manufacturing Sales
• 14:15 - US Oct. Indutrial Production
• 16:30 - US Fed's Evans (Non-voter) to Speak


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992