Looming Brexit Deadline Could Weigh on GBP/USD

Looming Brexit Deadline Could Weigh on GBP/USD

British Pound, GBP/USD, Brexit, US-UK Commerce Deal, Inside Market Invoice – Speaking Factors:Fairness markets surged increased t

Progress on US stimulus forward of the presidential debate
Theresa Might to vote towards authorities’s Brexit invoice
Hoping for some motion later this week

British Pound, GBP/USD, Brexit, US-UK Commerce Deal, Inside Market Invoice – Speaking Factors:

  • Fairness markets surged increased throughout APAC commerce as abating election uncertainty firmed market sentiment.
  • Brexit talks will seemingly dictate the outlook for the politically-sensitive British Pound.
  • Inside Market Invoice might threaten US-UK commerce relations.
  • GBP/USD struggling at key resistance. Is a reversal decrease within the offing?

Asia-Pacific Recap

Fairness markets kicked-off the brand new buying and selling week on the entrance foot, with Asian markets cheering the end result of the US presidential election and the extra diplomatic strategy to international coverage anticipated below a Biden administration.

Japan’s Nikkei 225 index soared 2.45%, Hong Kong’s Cling Seng rose 1.77% and Australia’s ASX 200 climbed 1.75%, as market sentiment notably firmed on the again of abating election uncertainty.

The haven-associated US Greenback continued it slide to contemporary month-to-month lows, whereas the Japanese Yen slipped decrease towards its main counterparts.

The cyclically-sensitive AUD/USD continued its spectacular month-to-month surge, leaping 0.54% to check key resistance on the 0.7300 mark.

Gold and silver continued to push increased as yields on US 10-year Treasuries held regular at 82 foundation factors.

Wanting forward, speeches from Federal Reserve Presidents Patrick Harker and Loretta Mester headline the financial docket alongside Mexican inflation knowledge for October and a speech from European Central Financial institution President Christine Lagarde.

British Pound Outlook: Looming Brexit Deadline May Weigh on GBP/USD

Market response chart created utilizing TradingView

Looming Brexit Deadline to Weigh on GBP

The politically-sensitive British Pound could come below strain within the coming days, as negotiators from the UK and EU scramble to ship a Free Commerce Settlement (FTA) earlier than the proposed Brexit deadline on November 15.

Prime Minister Boris Johnson believes a deal is “there to be carried out [and] the broad outlines are fairly clear”, including that “I’ve all the time been an excellent fanatic for a commerce cope with our European associates and companions”.

Nevertheless, European Fee President Ursula von der Leyen doesn’t appear to share Mr Johnson’s optimistic outlook, stating that though “some progress has been made, giant variations stay particularly on degree taking part in area and fisheries”.

British Pound Outlook: Looming Brexit Deadline May Weigh on GBP/USD

Supply – UK Home of Commons

These points have been a constant stumbling block for negotiations and it appears comparatively unlikely that both aspect will compromise, given EU chief negotiator Michel Barnier’s warnings that “the UK’s refusal to decide to situations of open and honest competitors and to a balanced settlement on fisheries, makes a commerce settlement at this level unlikely”.

With that in thoughts, the prospect of the UK tumbling out of Europe and not using a ratified commerce settlement might weigh on regional market sentiment and in flip undermine the British Pound towards its main counterparts.

US-UK Commerce Relations Hinge on Good Friday Settlement

Joe Biden’s stark warning to the British Prime Minister might additionally hamper the efficiency of the native foreign money within the medium-term, because the President-elect warned “we will’t permit the Good Friday Settlement that introduced peace to Northern Eire to develop into a casualty of Brexit [and] any commerce deal between the US and UK have to be contingent upon respect for the Settlement and stopping the return of a tough border”.

This prompted International Secretary Dominic Raab to reassure Biden and his new administration that the federal government has “no intention of imperilling” Eire’s peace course of.

British Pound Outlook: Looming Brexit Deadline May Weigh on GBP/USD

Nevertheless, Johnson continues to be set to push ahead with the extremely controversial Inside Market invoice, which is able to permit the Prime Minister to rewrite components of the Brexit deal agreed upon with the EU in 2019 and calls into query the way forward for the Good Friday Settlement.

With that in thoughts, GBP/USD charges might proceed to move decrease if Johnson is profitable in passing the laws that permits the federal government to interrupt the legislation in a “particular and restricted approach”, with the imposition of a tough border in Eire threatening the way forward for a US-UK commerce deal when President-elect Biden is sworn in on January 20.

GBP/USD Every day Chart – Consumers Struggling at March Excessive

British Pound Outlook: Looming Brexit Deadline May Weigh on GBP/USD

GBP/USD every day chart created utilizing TradingView

From a technical perspective, the outlook for GBP/USD stays skewed to the topside as value continues to trace firmly above all 4 shifting averages and the RSI snaps its downtrend extending from the August extremes.

Nevertheless, a reversal again in direction of the October 12 excessive (1.3083) may very well be within the offing if resistance on the March excessive (1.3200) holds agency.

That being stated, with the MACD indicator pushing to its highest ranges since early September and the RSI eyeing overbought territory, the trail of least resistance appears increased.

To that finish, a every day shut beneath the March excessive (1.3200) would in all probability generate a check of the 78.6% Fibonacci (1.3310), with a break above wanted to carve a path to check the yearly excessive (1.3483).

GBP/USD 4-Hour Chart – Bearish RSI Divergence Hints at Reversal

British Pound Outlook: Looming Brexit Deadline May Weigh on GBP/USD

GBP/USD 4-hour chart created utilizing TradingView

Zooming right into a 4-hour chart means that GBP/USD could reverse decrease within the close to time period, because the RSI fails to observe value to increased highs and the slope of the MACD indicator notably plateaus.

Failure to interrupt above resistance on the March excessive (1.3200) might encourage would-be sellers and generate a push again in direction of the 21-MA (1.3089), with a break beneath in all probability bringing key assist on the August low (1.2981) into focus.

Conversely, a breach of the psychologically imposing 1.3200 mark might open the door for GBP/USD to check resistance on the 78.6% Fibonacci (1.3310).

British Pound Outlook: Looming Brexit Deadline May Weigh on GBP/USD

Retail dealer knowledge exhibits 36.52% of merchants are net-long with the ratio of merchants quick to lengthy at 1.74 to 1. The variety of merchants net-long is 16.34% increased than yesterday and 18.72% decrease from final week, whereas the variety of merchants net-short is 1.98% increased than yesterday and 18.91% increased from final week.

We usually take a contrarian view to crowd sentiment, and the actual fact merchants are net-short suggests GBP/USD costs could proceed to rise.

Positioning is much less net-short than yesterday however extra net-short from final week. The mix of present sentiment and up to date modifications provides us an extra blended GBP/USD buying and selling bias.

— Written by Daniel Moss, Analyst for DailyFX

Comply with me on Twitter @DanielGMoss

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