Smile and wave boys, smile and wave.
When it comes to Theresa May and her handling of the Brexit plan, I can only call it ,'the smile and wave Brexit plan'. This is based on the very cool penguins from the Madagascar film. I expect you will recognise them below. One of the funniest scenes is when the penguins are having a conversation at the end of the film while sat on their deck chairs. The other animals board a large ship to leave the Island and, just as they are about to leave, one of the penguins say's , 'Don't you think we should tell them the boat is out of gas?' No, replies the others 'Just smile and wave, smile and wave'.
It feels that Theresa May is doing exactly the same thing. The Brexit plan seems doomed to failure. Parliament are set to reject it as soon as they get a chance to vote. Yet, May ploughs on with the plan regardless and maintaining a fairly chipper exterior in the process. Smile and wave boys, smile and wave.
I suppose, in a way, what other option does she have? Weep and frown? I can't blame Theresa May for her approach. However, there may be more wisdom in her approach than meets the eye. In October 1971 Ted Heath led a meagre majority to get a deal for Britain to join the EU through the House of Commons. Theresa May is in a similar situation , but with a slim minority based on voting predictions. See here for some analysis on the voting predictions. The success of Ted Heath was put down to the fact that he allowed a free vote of Conservative MP's leaving it to conscience and taking some of the cross-party politics out of the issue. The cross party support help will be vital for Theresa May. If she wants to get the deal through Tory Brexiteers and Labour front benchers she will need to draw on support from elsewhere in the commons, perhaps Ted Heath's approach will help her.
The relevance for us as currency traders is that in the near term there will be a negative shock short for the GBP at some point in the near future.. Will it be a vote of No confidence triggering a leadership challenge? That is most likely the next move. Failing that, will it be the rejection of the bill when it comes to Parliament? Quite possibly. The stats are leaning that way. Now, past this point the direction becomes a little murkier. Will there be a General election or a second referendum on Europe? Those eventualities are for a later stage, but for now the only way seems down for the GBP. Look to sell rallies and, smile and wave as you do.
