- GBP/USD saw some kneejerk selling on the news that Brexit talks had been temporarily halted due to fears of a Covid-19 outbreak amongst negotiators.
- The pair briefly fell below the 1.3200 mark, but buyers quickly returned and pushed the pair back to the 1.3220s.
- Cable appears to have broken to the downside of two key recent upwards trend channels, opening up the door for further losses ahead.
GBP/USD dipped momentarily below the 1.3200 mark after EU Chief Brexit Negotiator Michelle Barnier announced that one of the EU negotiators had tested positive for Covid-19. The pair has since recovered back above this level and trades close to 1.3220 again, nursing losses on the day of roughly 40 pips or 0.3% on the day.
Negotiation halt ought not affect probability of a deal being reached
Common sense, as well as the market reaction, indicates that Thursday’s technical interruption ought not have any meaningful impact on the probability of the two sides getting a deal. However, if it turns out that a large number of the negotiators have contracted the virus, this might make things more difficult and could trigger further GBP weakness, so this is something markets ought to be on standby for.
In terms of the latest on the state of negotiations prior to the abrupt halt; the latest reports suggest that while the two sides are negotiating more intensively than before, significant differences remain. Meanwhile, Barnier cancelled briefings to EU ambassadors next Tuesday night and Wednesday midday, with the BBC’s political correspondent saying that this is “perhaps a good sign that negotiators are churning through the obstacles to a deal, working not briefing”.
GBP/USD breaking to downside of recent upwards trendlines
GBP/USD looks to have broken to the downside of two important recent upwards trendlines; towards the end of Wednesday’s US session, the pair broke below the trendline linking the 12, 16 and 17 November lows. On Thursday, the pair looks to have moved below the uptrend linking the 2, 4, 5 and 13 November lows.
Thus, the near-term technical outlook for GBP/USD is now looking more mixed/less bullish than before. If the recent downside continues and the pair breaks below 1.3200, the door is open for a run at 1.3150 (13 November US session lows) and then the 1.3100 level, which coincides nicely with 12 November lows and the pair’s 21-day moving average.
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