- GBP/USD has been shunted back to the downside as any positive tone that may find a way through the entanglement of negativty out there for Brexit are superseded by a fresh invalidating headline which sends the pound right back into its place.
- The news that the European Union chief Brexit negotiator Michel Barnier had said earlier that the main elements of the Brexit treat text were ready has been treated with scepticism.
It is also being reported that Barnier will tell the EU27 that a Brexit agreement is still not reached PM May’s ambition was to have a full draft withdrawal text ready early this week but the decision is likely to be postponed further, as May’s proposal is under fire. Volumes are also thinner in North America today on account of Veteran’s Day which is leaving bulls very exposed due to the lack of liquidity nor impetus to buy sterling. GBP/USD had already dropped to lowest level since Nov 1 on Brexit angst and will continue to suffer on uncertainties looking to 1.2827 recent lows.
“The development during the past week supports our view that the real test is probably not reaching an agreement with the EU, but to get the deal through the House of Commons. Brexit hardliners, the DUP, moderate pro-EU Conservatives and Labour are all threatening to vote it down. Our base case is still that the EU and the UK will reach an agreement in December but that negotiation may slip into early January. We still expect a decent Brexit (75% probability) but think one should not rule out a ‘no deal’ Brexit (15% probability),” analysts at Danske Bank argued.
Eyes on UK economy this week
Meanwhile, the UK economy is performing reasonably well but the pound and economy will be out and under scrutiny when we see UK wages, inflation and retail sales. Should the data come in strong, it will bring back the prospects for another BoE rate hike, but the Brexit uncertainties will continue to pressure for the meantime. “Currently, the market struggles to see the next BoE rate rise within a year. On balance we see GBP staying reasonably bid on temporary Brexit optimism, but larger gains look to be had against the EUR rather than the USD,” analysts at ING Bank explained.
GBP/USD levels
GBP/USD bear targets include 1.2810 and 1.2697 (Oct 30 low) which come into scope as the opposition to the tories will call for another election if Tory ministers vote down whatever deal PM May finally puts to Parliament. Below 1.2662, analysts at Commerzbank argued that this would trigger further weakness to the 61.8% retracement of the move 2016-2018 and June 2017 low at 1.2593/89. On the upside, bulls need to get through 1.3025 ahead of the top of the range at 1.3260/1.3363.
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