GBP : Friction

(Sun, 29 Nov 2020). The post-Brexit trade talks between the EU and the UK are nearly out of time with a decision likely in the next few days. While it has always been expected that these negotiations would go down to the wire, the reality is that if there is no breakthrough in the next few days any deal struck afterward would not be able to be ratified by the EU member states, leaving the EU and UK trading on WTO terms from January 1, 2021.

The charts are now starting to show that the recent optimism that a deal will be struck fading away, leaving Sterling vulnerable to a sharp sell-off if trade talks fail. For now, the fundamental backdrop is more important than any technical set-up and will remain so until a deal is struck or not.

GBP/USD continues to fail around the 1.3400 level and is unlikely to make a confirmed break higher ahead of any trade talk confirmation. It may well be that a ‘skinny’ EU-UK trade deal is reached in which case cable will likely press the 1.3515 high printed mid-December 2019 before stair-stepping one or two higher over the coming weeks. A no-deal sees 1.2675 come under short-term pressure.

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