Brexit warning weighs on GBP/USD

After an emergency dinner meeting on Wednesday night with European Commissioner Ursula von de Leyen failed to deliver a Brexit breakthrough, UK Prime Minister Boris Johnson issued a warning overnight Britain should prepare to leave the EU without a trade deal.

Brexit 1

With just under three weeks left until the end of the 11 month transition period, and with “very large gaps” remaining including the EU’s demand that the UK follow future changes in the EU's rules, Johnson's warning has heightened Brexit anxiety.

Although discussions are scheduled to continue until Sunday, Johnson said “There’s now the strong possibility we will have a solution that's much more like an Australian relationship with the EU than a Canadian relationship with the EU.” An inference that the UK would fall back on the rules of the WTO and face tariffs as well as quotas when the transition period ends on December 31st.

Whether the latest developments confirm the probability that a no-deal Brexit has increased, or rather is the latest instalment in brinkmanship aimed to foster compromise, GBP/USD has fallen back towards 1.3300 at the time of writing.

The latest setback in GBP/USD leaves last week's 1.3540 high outstanding as another failed attempt to break the cluster of resistance 1.3480/1.3520 that includes several highs since June 2018 and also picks up the January 2009 low of 1.3503. This resistance band is ultimately favoured to give way in due course.

Trendline support from the March 2012, 1.1411 low is viewed towards 1.3100 and is expected to attract buyers - more so given a disorderly Brexit is off the table after the withdrawal of controversial clauses in the Internal Markets Bill.

However, should GBP/USD see a sustained break of the 1.3100 support level, there is room for the decline to extend towards a band of support 1.2750/1.2675 coming from the 200-day ma and the September 1.2675 low.

Brexit warning weighs on GBP/USD

Source Tradingview. The figures stated areas of the 11th of December 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

Join our live webinars for the latest analysis and trading ideas. Register now

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.

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