GBP/USD retreats ahead of a potential Brexit deal

The GBP/USD is down for the third consecutive day even as traders remain optimistic about a Brexit deal. It is trading at 1.2935, which is lower than this month’s high of 1.3176.

Brexit deal nears

A Brexit deal is inching to a close, according to Bloomberg sources and the European commission president, Ursula von der Leyen.

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According to Bloomberg, negotiators have made significant progress in the past few weeks and are close to resolving key issues. The report said that a deal could be reached in early November, ample time before the December 31^st deadline.

Indeed, the deal is so close that the UK and the European Union have started drafting the text on key issues, including on level playing field and state aid. Also, they have made strong progress on how the deal will be enforced. Other areas they have made progress on are on welfare rights, customs and air transport.

The same sentiment was repeated by Ursula von der Leyen in a statement yesterday. She said that the two sides have made crucial progress but cited level playing field and fisheries as the only outstanding issues.

On the level playing field, the EU wants a commitment that the UK will not implement regulations that unfairly hurt its business. It also includes the level of state aid that the UK can give its companies. The UK has said that, as an independent country, it needs to have an authority to set its regulations.

On fishing rights, the contention is on access to the rich UK waters where most EU fishermen catch their fish. The EU has demanded to have unlimited access to these waters. She said:

“We are in very close contact on an hourly basis because the negotiations now have been intensified … There are 11 other fields of files that have to be negotiated.”

On fisheries, France’s Europe minister said:

“The face of Brexit will be the face of our fishermen, so we must be able to tell them that their interests were protected.”

The GBP/USD pair is possibly falling because of the rising Covid-19 cases in the United Kingdom and the potential risks to the economy. In a report yesterday, the Financial Times reported that more than 500,000 companies were in significant distress. This means that these firms have a debt case in a local court worth ~£5,000.

GBP/USD technical analysis

On the four-hour chart, we see that the GBP/USD price has been falling since October 21, when it reached a high of 1.3176. During this decline, the price managed to move below the ascending blue channel. It has also moved from the 50% and 38.2% Fibonacci retracement level. The price is also below the 25-day and 15-day exponential moving averages. Therefore, I suspect that the pair will continue falling, with the next target being the 23.6% retracement at 1.2862.