Brexit Deal is "Fingertip Close"

Brexit headlines have been in the driver’s seat

Brexit headlines have been in the driver’s seat as far as the Great British Pound is concerned.  As my colleague Ken Odeluga wrote earlier, it looks like the coming hours will tell whether pullbacks of the pound and related assets will gather pace.    Throughout the day, more and more headlines have come out, which in this case, are continuing to push Sterling to higher levels.  Although there will not be a deal today, it appears negotiators are close to an agreement. The latest developments are as follows:

  • UK Cabinet Minister say the Brexit deal is “fingertip close” (Daily Mail)
  • EU27 ambassadors have been told that all issues have been agreed, except the VAT (Buzzfeed)
  • French President Macron says an agreement is being finalised (Reuters)
  • According to the Guardian, ERG Chair Steve Baker said the EU leaders need to see the treaty text.  If will be difficult for them to endorse at the summit without the text, however they will continue working throughout the night.

The two most affected currencies of a Brexit deal (or lack of a deal) are the Euro and the Pound.  On a daily chart, EUR/GBP has been trading lower since the August 12th highs at .9324.  Once price fell to horizontal support and the 61.8% retracement from the May 6th lows to the August 12th highs, the pair bounced to the 38.2% retracement level and the psychological resistance near .9000.  In an almost textbook patterning, price broke lower, forming a flag formation which targets .8490, the May 6th lows.  Price fell relatively quick over the last few days and put in a marginal new low today.  Along with a close to oversold RSI, bears are hoping the pair may be due for a bounce towards the .8785 level where they can add to short positions. 

Source: Tradingview, City Index

On a shorter-term time-frame, the RSI shows just how oversold EUR/GBP actually is, AND it is diverging from price, an early indication the pair may bounce. Price has also formed a falling wedge pattern.   If price were to break out higher from the falling wedge, the target would be a 100% retracement of the wedge, which is .8810.  This level coincidentally (or not) also happens to be the 50% retracement from the highs on October 10th to todays lows.  Horizontal resistance comes in just below that there at .8787.  Support comes in at the May 6th lows at .8490 (which is also the target for the flag pattern on the daily).  Below that, price can drop all the way to horizontal support from 2016 and 2017 near .8300 (not shown).

Source: Tradingview, City Index

It appears now that a Brexit deal is in sight, however be aware that when a something is considered 99% done, that 1% seems to find a way of potentially messing things up!

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.