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  • GBP/USD has seen upside in recent trade amid a wave of Brexit optimism but failed to breach the 1.3450 mark.
  • Should the rumours be true that a deal is close, a test of annual highs at 1.3539 is likely.

GBP/USD has been popping to the upside amid positive Brexit headlines in recent trade, with the pair bursting above the 1.3400 level and setting daily highs just short of the 1.3450 mark. On the day, GBP is the G10 outperforming currency and currently trades close to 1.3430 with gains of 0.8% or just over 100 pips.

Brexit latest: “Big buzz” that the UK is headed towards a deal

At 16:06GMT a BBC reported tweeted that there has been a “big buzz” amongst Tory MPs over the last hour that the UK is heading towards a Brexit deal. Moreover, “Eurosceptics” are apparently being reassured that they will be happy with the deal, as the UK has apparently “seen off” the prospect of unilateral punishment by the EU if the UK diverges from EU standards in the future (called lightening tariffs) and negotiated a joint dispute mechanism.

The reporter goes on to warn that nothing has been confirmed yet, but news that a deal has been reached is likely to come if/when UK Leader of the House of Commons Jacob Reese-Mogg announces that the Commons will set on Monday and Tuesday next week, prior to any official UK/EU announcement.

Moreover, Eurosceptic Conservative MPs have apparently said that they would want to see any deal by Thursday and no later than Friday if they are to consider it in the Commons on Monday and Tuesday.

The latest reports come on the back of some more positive noises from the EU side. Earlier in the day, a German envoy to the EU was reported as saying it is still possible to reach a deal by end of the week and the Irish Foreign Minister Simon Coveney said he believes the two sides are seeing progress. GBP bulls thus seem to be betting on or even front running the prospect that the two sides might be on the cusp of announcing a deal.

However, a Times reporter sought to dampen some of the growing optimism, quoting his sources on both sides of the negotiations as saying that no deal is to be announced tonight and that a deal is still not there, although a deal is still possible this week, he noted.

As one market commentator noted, this would not mark the first time when excitement that a deal might be close to being announced had got GBP all riled up, only for sterling to be let down. Instead of looking at London, it might be better to watch Brussels for the “white smoke”.

Anyhow, if the rumours do prove true and a deal is announced alongside the news that the House of Commons will be sitting next Monday and Tuesday (to vote the deal into law), then GBP will likely see a further leg higher, perhaps above and beyond current annual highs which reside at 1.3539.

GBP/USD eyeing a move back towards annual highs

As noted, if rumours prove to be correct a mover beyond last week’s highs at 1.3478 and then onto the annual highs at 1.3539 seem likely. Beyond these levels, which would be likely to go in the event that a deal is announced, a move towards 1.3600 and even the September 2017 highs at 1.3657 would be on the cards. Conversely, if the rumours turn out to be false, all this optimism will need to be priced out, and GBP/USD is likely to slide back towards this week’s lows around 1.3300, though with talks continuing in the background, further selling beyond here would be unlikely.

GBP/USD four hour chart