GBP : Trade Talk Pessimism

(Wed, 2 Dec 2020). GBP/USD was knocked back modestly in early European trade Wednesday after a report that Michel Barnier has warned EU ambassadors that there may be no post-Brexit deal with the UK.

Earlier, another report that the EU-UK talks on their relationship once the Brexit implementation period ends are intensifying boosted GBP/USD although this has still to be confirmed. The price action has again emphasized how traders in GBP/USD and the GBP crosses, especially EUR/GBP, need to watch the screens carefully for headlines from the talks.

GBP/USD BUFFETED BY BREXIT HEADLINES

GBP/USD was again sent one way then the other early Wednesday as optimism then pessimism about the talks between the EU and the UK on their relationship once the Brexit implementation period ends on December 31 first helped GBP/USD extend it recent gains then sent it back down again.

The competing headlines that prompted the moves emphasized once again that traders in GBP/USD and the GBP crosses, especially EUR/GBP, need to be nimble and that the trade talks could still go three ways: a comprehensive deal, no deal or a skeleton deal – which is still the most likely option.

DEAL OR NO DEAL

The first, positive, headline suggested that the negotiators have made sufficient progress to “enter the tunnel” – jargon for an intensification of the talks and an end to press briefings. The second, negative, headline reported that chief EU negotiator Michel Barnier has warned EU ambassadors that there may be no deal, which is arguably stating the obvious.

These came against the background of a weak US Dollar on continuing hopes that coronavirus vaccines and more stimulus will help the global economy recover, as well as talk that French President Emmanuel Macron will hold out against any trade deal that restricts the access of French fishermen to UK waters and that EU heads of state and government are concerned that Barnier could concede too much ground.

For traders, these are difficult waters to navigate: ultimately it depends on who to believe. Technically, however, GBP/USD continues to advance towards the September 1 high at 1.3483, which remains the near-term upside target.

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