Legal Proceedings, Brexit Talks & Pound Volatility
Fiona Cincotta October 2, 2020 9:20 AM
The European Union has launched legal proceeding against the UK after Parliament voted through the Internal Markets Bill, which includes plans to override parts of the already agreed Brexit Divorce Bill Treaty
The European Union has launched legal proceeding against the UK after Parliament voted through the Internal Markets Bill, which includes plans to override parts of the already agreed Brexit Divorce Bill Treaty.
Even so, much to the Pound’s relief, the EU has not walked away from trade talks with the UK. However, progress has been slow in the 9th round of Brexit trade talks, as highlighted by MP Michael Gove. However, he added that a deal was still possible with goodwill from both sides.
The Pound experienced elevated volatility in the previous session on Brexit headlines. GBP slipped 0.6% vs EUR & USD on a report in Reuters that the two sides had been unable to close the gap in differences. It then soared 1% on reported optimism from the UK camp over trade talks, before falling 0.2% when EU officials said that the optimism as unfounded.
GBP’s one-week implied volatility to the highest since mid-September. This makes it one of the most volatile G10 currencies after Norway’s Krone.
What’s clear is that the Pound is once again a barometer to Brexit trade talk after being dominated by Covid for the past 6 months. GBP stands ready to react to Brexit headlines as the British government’s self-imposed deadline draws into focus. Brexit volatility could well rise as we draw closer to the mid October.
The EU’s 27 national leaders will begin a two-day meeting in Brussels that will also assess progress in the negotiations over a trade agreement, which could be at a critical level.
An update on trade talks is expected later today and could have a significant impact on the viewed probability of a trade deal. At these levels GBP considers a deal still possible. A fall back towards $1.25 could be on the cards should investors become more convinced that a deal won’t be struck.
GBP/USD levels to watch
GBP/USD has just moved higher in early trade on Friday after selling off in the previous session. The pair is looking to hold $1.29. The latest jump has seen it push over its 590 and 100 sma on he 4 hour chart indicating a positive bias in the short term. Longer term while the pair trades below its 200 sma ($1.3030) the outlook is bearish.
Resistance can be seen at $1.2980/$1.30weekly high & key psychological level. On the down side the 100 sma offers support at $1.2850 prior to $1.28 the 50 sma.