GBP: At what level the bears re-load? - BBH

Research Team at BBH, notes that the news that UK Prime Minister May has accepted that Parliament should vote on her plan for exiting the EU stopped sterling's headlong slide.  

Key Quotes

“Sterling had been pounded for roughly 8.5 cents since the start of the month, including the last four sessions.  The idea that parliament, where the Conservatives enjoy a slim majority, is less enthusiastic about Brexit may mean a less acrimonious divorce.

Sterling advanced sharply.  Like the flash crash at the end of last week, it took place in thin pre-Tokyo turnover.  It recovered from low below $1.21 in the North American session to reach a high just shy of the high set in the European morning yesterday near $1.2330.    

Sterling's rise failed to entice more short-covering, and instead, it was sold back toward $1.2220 in late-Asian trade.  It choppily traded between $1.2230 and $1.2320 in the London morning.  

May asked that Parliament not try to block Brexit or undermine her negotiations with the EU.  May had faced the possibility of a UK High Court ruling that would give Parliament greater say than May had intended.  In addition, Labour tabled a motion which may have garner backbench Tory support.  It called for a "full and transparent debate on the government's plan for leaving that EU" and Parliament scrutiny of the government's plan before the start of formal talks.

Sterling bears may not be persuaded.  May is still insisting that limiting immigration is more important than access to the single market.  May also appears to see a post-Brexit UK in which financial services are somewhat less important for the economy, while other strategic industries flourish.  Global investors seem less convinced.  The UK out of the EU may be worth 80% of less than what it was when it is part of the EU.  

Sterling had appeared to be a one-way bet.  No one seemed to want to buy sterling.  Talk of parity with the dollar and/or euro had emerged.  By nearly any technical measure, sterling was stretched.  Momentum was carrying the day, and the inability of sterling to recover from its flash crash, unlike most of victims of flash crashes, only fueled the bearish sentiment.

The issue for many now is at what level the bears re-load.  Two levels may be key.  Yesterday's high was seen near $1.2375.  Rising above the previous day's high would be a constructive sign.  Note that sterling has failed to close above its five-day moving average since September 28.  It is found near $1.2360 today.  The other level investors should keep in mind is about a cent higher (~$1.2375), which is the post-flash crash high.”