- The GBP/USD has dropped by more than 1.30% as investors react to the possibility of a no-deal Brexit.
- In a statement to the European Union, Michel Barnier said that he “cannot guarantee” a Brexit deal.
- Boris Johnson is also said to be preparing for a no-deal outcome.
The GBP/USD has crashed by more than 1.30% today as the market reacts to the ongoing Brexit crisis. The pair is trading at 1.3260 and is on track for its worst day since September this year.
Barnier pessimistic about Brexit
In a highly anticipated statement to EU leaders, Michel Barnier warned that he could not guarantee that the two sides will reach an agreement. He said that a ten-hour conversation between the negotiators failed to bridge the gap between the two sides.
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According to the Financial Times, he said that the two sides remained in contact with Wednesday being the effective deadline for an agreement. A person briefed by Barnier said:
“The outcome is still uncertain, it can still go both ways. The EU is ready to go the extra mile to agree on a fair, sustainable and balanced deal. It is for the UK to choose between such a positive outcome or a no deal outcome.”
His statement came a few hours after The Sun reported that Boris Johnson was preparing to give up on the talks as time runs out.
There are two main points of disagreements between the two sides. First, there is the issue of fisheries, where the UK wants to have total control of its waters. During the weekend, Angela Merkel and Emmanuel Macron made some concessions about the fishing issues.
Second, there are concerns about regulations and competition; the so-called fair playing ground issues. The EU wants a legal framework that will guide future UK regulations. That’s because it does not want a situation where the country implements deregulation that will create an uneven playing field.
Both sides agree that the impact of a no-deal Brexit will have no winners. For the UK, a country that is struggling, the impact could be worse. For one, firms like Nissan, Rolls-Royce, and Airbus have warned that they will cut their workforce in the country. Also, major financial institutions like Goldman Sachs have already started to shift their workforce and capital to other European capitals.
Still, analysts and gamblers believe that the two sides will reach a deal. According to Smarkets, 64% of gamblers believe that there will be a deal while 39.6% of them don’t believe a deal will happen.
GBP/USD technical analysis
On the daily chart, we see that the GBP/USD pair dropped to an intraday low of 1.3227. This price is along the lower side of the ascending channel that is shown in black. It has also moved below the middle line of the Donchian channels.
Therefore, as you can test in a free forex demo account, I believe that the pair will continue falling in the near term. If this happens, the next support level to watch will be the 23.6% Fibonacci retracement level at 1.3040.