The British Pound (GBPJPY) received a boost this morning as the UK Supreme Court ruled against the UK government’s suspension of parliament. The UK parliament can now be recalled and MPs could get back to work.
GBPJPY saw a swift bounce in price from 134.15 to 134.63 on the news, however, the price had been rising from 9 am of the London morning, and from its low the price rose from about 133.52 to 134.62.
At the time of writing the British pound was not able to keep most of its gains following the spike in price. It could be as recalling parliament will probably not have any immediate effect on Brexit. Before the suspension of the UK parliament, MPs were able to pass a law that forces the UK government to ask for an extension if there is no deal in place before the October 31 deadline. As it looks like there will not be enough time to broker a deal before the October 31 deadline it looks like an extension to January 31, 2020, could become a reality, followed by a general election post October 31.
However, the ruling by the Supreme court could raise the demand of Boris Johnson resigning, and this could pave wave for a stronger pound if a new less pro-Brexit party leader for the Tories is chosen. However, this looks unlikely at this moment. The PM is due to speak in New York this morning.
Directly after the news broke, the leader of the opposition party, Jeremy Corbyn said:
“I invite Boris Johnson … to consider his position and become the shortest-serving prime minister there has ever been. Obey the law, take no-deal off the table, and have an election to get a government that respects democracy…and does not usurp it in the way Boris Johnson has done.”
Technically, GBPJPY had a stellar move from 126.59 in August to 135.79 in September. The price is now considered short-term overbought according to the Relative Strength Indicator (RSI 14), as seen in the lower panel below. The move happened as traders priced in the extension to 2020.
As the price had a strong run-up, I think GBPJPY could continue to trade sideways around the current level of 134, the price might even turn slightly lower and reach 132 as traders that bought in August book profits.
However, if the price manages to trade above the September high of 135.82, it might send the price to the next major high at the July 1 level of 137.81, followed by the June 10 high at 138.40.