• Joel

GBP rallying, Brexit deal in sight?

GBP rallying, Brexit deal in sight?

GBP is today’s solidly outperforming G10 currency, with GBPUSD advancing from morning lows around 1.3200 to well above the 1.3250 mark, building on gains made during the AsiaPac session that took the cross back above 1.3200.

Driving the improvement in optimism is (you guessed it) the latest updates on Brexit; a Times reporter this morning tweeted that we could see “white smoke” (i.e. signs that a deal is being finalised) as soon as this Friday if EU Chief Brexit Negotiator Barnier chooses to brief EU ambassadors on Thursday/Friday rather than on Sunday. Moreover, around an hour later, Newswires ran similar headlines, suggesting that Brexit negotiators are zeroing in on a trade deal as early as next week.

Reports this morning come on the back of similarly optimistic reports from last night; the Sun reported that UK Chief Brexit Negotiator Frost told UK PM Johnson to expect deal to have been reached with the EU on trade as early next week, while the EU is reportedly looking at creative ways to avoid an accidental no deal (i.e. the risk that a deal is agreed but not able to be passed through the EU parliament and into EU law by the end of December).

Amid growing hopes for a deal, the technical GBPUSD picture continues to look bullish. Since rebounding from an upwards trendline linking 2nd, 4th and 5th November lows last Thursday (where the low was put in at just above 1.3100), GBPUSD has maintained bullish momentum and is eyeing an imminent retest of this month’s highs at just above 1.3300. Above that, the next significant level of resistance comes in the form of the 2020 high at just below 1.3500.

What next for Brexit and GBP?

So today we have had reports that a deal is close, which is of course goods news and is clearly being taken by markets as an indication that the probability of the two sides agreeing on a deal is increasing (hence the rally in GBP).

But there have not been any reports yet that any progress has been made on the key negotiating sticking points (fisheries, states aid, level playing field). I imagine that if a deal is supposedly getting closer, and could be agreed as early as next week, there must be some movement going on in these until now contested areas. But GBP bulls likely want to see actual evidence of this before they continue to push GBPUSD higher.

So then, my main focus going forward will be on looking out for evidence that key sticking points have been bridged. If we get this over the coming weeks, GBPUSD looks set for fresh monthly highs.


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