Brexit Update, GBPUSD Holds $1.30
Fiona Cincotta October 23, 2020 6:24 PM
A week ago, Boris Johnson’s soft Brexit deadline, turned out to be much softer than the market anticipated. Talks are back on and GBPUSD trades over the key $1.30 level.
A week ago, Boris Johnson’s soft Brexit deadline, turned out to be much softer than the market anticipated. After withdrawing from trade negotiations over a lack of progress, Boris Johnson and co were once again back round the negotiating table on Thursday trying to hammer out a trade deal before it’s too late. So, what happened?
Firstly a speech by Michel Barnier in which he said “both sides needed to work constructively” was considered a gesture by London which was jumped on quickly, particularly as the EU had just days earlier said just the UK needed to work hard.
Renewed hopes for a deal booster GBPUSD 1.5% on Wednesday pushing the pair back over $1.30 for the first time since early September hitting a 6-week high of US$1.3178.
• Access to UK fishing waters
• State aid
• How to manage legal disputes once the deal is in place.
Frustrations over the lack of progress have seen GBPUSD gradually give background across the last two days of the week. Whilst the pair remains above the crucial $1.30 psychological level, it has given shed -0.8% in 2 days. However, across the week as a whole GBP/USD remains up +0.9% reflecting the improved mood surrounding the chances of a deal.
Significant gaps remain between the two sides and in very key areas. It remains to be seen if these differences can be bridged in the intensive talks.
Whilst no new timetable for talks leading to a deal has been created, expectations are now for an agreement in early November.
26th November: a trade deal must be presented to the European Parliament by this data is ordered to allow sufficient time for it to be ratified
10th – 11th December European Council Meeting: This is considered too late in the day for a deal to be confirmed. However, as with all things Brexit, where there is a will there is a way and deadline which once appeared hard have in other occasions softened.
As the UK (and Europe) struggle with rising covid cases and tightening lockdown restrictions, the fragile economic recovery looks set to be derailed and fears of a double dip recession are building. Given this backdrop and despite the dangerous games of brinkmanship a no deal Brexit looks like an economic shock that both sides will want to avoid at all costs.
GBP/USD trades firmly above its 50,100 & 200 sma on the 4-hour chart, as well as above the ascending trendline dating from late September – a bullish chart. The 50 & 100 sma also cross over the 200 often considered a buy signal.
Immediate resistance can be seen at $1.3178 Wednesday’s high. Meanwhile support can be seen at 1.30 the psychological level and 50 sma. A breakthrough here could open the door to $1.2950 trendline support prior to horizontal support to 1.2850.
GAIN Capital UK Limited (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.