The fate of the pound will depend on the outcome of the sequencing of the events at play this week
(Please do bear with me as this is going to be a bit of a long one as we go through the scenarios that the pound may encounter over the next few days)
It is going to be a massive day in the UK parliament and we're already seeing the pound react to this as cable is driven to fresh lows under the 1.2000 cable in the European morning.
The big question on everyone's lips is what will happen next?
Now, we can never be sure of the outcome of the events in parliament over the next few days - more so given the unprecedented level of political uncertainty that is at play - but the best we can do is prepare ourselves for what may happen next instead.
In the case of the pound reaction, it is important to identify the key risk factors affecting the currency and the sequencing of events that will take place.
Ultimately, the key risk factor dragging down the currency right now is the threat of a no-deal Brexit. As such, expect markets to be utmost sensitive in responding to any headlines pertaining to the matter.
Given that, the first order of business in parliament this week will be rebel/opposition lawmakers seeking to take control of the order paper to push forward a motion/bill to prevent a no-deal Brexit - by requesting an extension to the 31 October deadline.
House speaker John Bercow will most certainly allow that but the headline in itself may give the pound a nudge or two higher as we move closer towards a vote later in the evening.
The vote will be the next key risk event at play and if we do see one where rebel/opposition lawmakers manage to overwhelm the government, there is potential for the pound to rise before the end of the day.
Should they fail, it means that legislative efforts to stop a no-deal Brexit is all but done with and I would expect the pound to crumble as lawmakers will only be left with a no-confidence motion to deny Boris Johnson before parliament is prorogued next week.
Assuming the vote succeeds, Johnson is almost surely going to call for a general election considering it means that he has already lost his working majority.
The election motion vote may take place tomorrow or on Thursday depending on how things in parliament progresses. But a key issue here is that rebel/opposition lawmakers will want to also get a bill passed before the election motion so as to get a fail-safe that a no-deal Brexit can be avoided before heading to the polls.
At this stage, I would classify the latter development as a long shot but it is one to consider before the election motion and if rebel/opposition lawmakers can manage it, it would be good news for the pound.
Otherwise, an election motion will be up for voting next and Johnson needs two-thirds majority (434/650 MP votes) to get that passed. The news in itself may be a bit of a setback for the pound since it stops legislative efforts that were voted on above.
However, the pound outlook will then shift towards a story of Remainers vs Leave once again. I reckon the former and Labour are in a relatively weak position as we potentially head to the polls and the big thing to watch here is will Nigel Farage's Brexit Party team up with Boris Johnson to form a new electoral pact?
As such, the more markets start to realise that Johnson is in a relatively robust position, the weaker the pound outlook will become. However, if somehow we see a surprise in early polling, then we could see scope for the currency to recover strongly ahead of the proposed 14 October election date.
As for the rest of this week, just take note of court hearings as well as that could potentially deliver some headline shocks to the pound too.
