- The GBP/USD gapped up as investors reacted to the latest Brexit news.
- The EU and the UK will continue talking as they attempt to reach an agreement.
- Analysts believe that the two sides will ultimately reach a Brexit deal.
The GBP/USD pair bounced back during the Asian session as the game of chicken between the European Union (EU) and the United Kingdom (UK) continued over the weekend. The pair is trading at 1.3332, which is higher than last week’s low of 1.3160.
Brexit games continue
In a fruitless dinner meeting last week, the UK and the EU agreed to continue negotiations about a potential deal and set yesterday as the deadline.
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After four days of intense talks, the two sides failed to reach an agreement, raising the possibility of a no-deal Brexit.
In a statement yesterday, the two sides agreed to go an extra mile on the talks and reach an agreement before the December 31st deadline.
There are three main hindrances to a Brexit deal: fisheries, fair-playing field, and governance of the deal. On fisheries, the UK wants to limit the number of fishing boats from the EU in its waters. Similarly, on fair playing field, the EU wants the UK to have similar regulations to avoid any unfair advantage.
According to the Brexit divorce agreement, time is running out. The two sides need to have a deal by December 31st. If there’s no agreement, the UK will be treated like other foreign countries. This means that its goods will be subjected to tariffs. Also, the tourism industry will be affected since EU visitors will need a UK visa.
In total, data from the government points to a 2% hit on UK GDP and more than 300k in job losses in the first year. Indeed, many firms have already started to leave the UK. In the past few days, banks like Goldman Sachs and Morgan Stanley have shifted billions of dollars to Germany. Also, it would force the Bank of England to cut rates below zero for the first time ever. In a note, Marc Chandler, an analyst said:
“The mere continuation of talks and the lack of immediate selling spurs some short-covering, but it means little besides a reflection of market psychology. If these talks fail, my bet would be that there will be an effort to restart them next year.”
GBP/USD technical outlook
The GBP/USD pair rose to an intraday high of 1.3363 as investors in forex reacted to the extension of the Brexit talks. On the four-hour chart, the pair has moved above the 25-period and 15-period exponential moving averages. This is after it formed a hammer pattern on Friday.
Therefore, the pair may continue rising as bulls aim for the next resistance level at 1.3400. On the flip side, a move below the support level of 1.3250 will invalidate this trade.
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