Pan or gone: the pound is again in limbo

An empty economic calendar and the American Thanksgiving forced traders to keep track of only one fundamental topic: Brexit. The pound is methodically followed by the euro and the franc, as well as some defensive instruments. Brexit, in turn, provokes considerable volatility in recent days, which covered not only currency pairs involving the pound, but also many other cross-pairs. In particular, the pound-dollar pair in the first half of the day showed quite a sharp price jump to 1.2927, which ended with no less a rapid rollback to the middle of the 28th figure. Traders react to the stages of Brexit contractual process, although the prospects for the deal are still a big question: the market mood changes almost every hour, depending on the color of the information background.

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At the beginning of the day, the pound was under strong pressure because of Spain's position on the fate of Gibraltar. Let me remind you that the Spanish demand that the British include in the text of the agreement an additional paragraph that would separately oblige London to discuss affiliation and other issues related to Gibraltar. At the moment, such intentions are not clearly spelled out in the draft agreement – there is only article 184, according to which all outstanding issues will be discussed after the official withdrawal of Britain from the EU. Madrid is categorically against to such a formulation, as it can be interpreted quite freely. But London is not in a hurry to meet it either: according to the British side, the draft agreement was previously agreed in Brussels and approved by the British ministers.

As a result, Brexit faced another problem that could turn into a real disaster for the negotiators, if the Spaniards do not support the document at the extraordinary EU summit, which (so far) is scheduled for November 25. Madrid has already voiced such threats, despite the fact that last night Spain and Britain signed four memorandums and a tax treaties. But these documents do not relate to the issue of Gibraltar – they touched on trade issues, environmental problems, police and customs cooperation. But the most sensitive issue still remains in the air and continues to put pressure on the pound – because if the parties do not come to a preliminary compromise, Brussels will not hold a summit, at least this Sunday.

What caused the upward breakthrough of the GBP/USD? The fact is that, despite the British-Spanish difficulties, the contractual process goes on as usual. Moreover, some aspects of it allow us to lay some optimism about its prospects. Thus, the text of the declaration of relations between the EU and Britain (or rather, its draft) had appeared today in the press. This document describes in more detail the general, declarative agreements – this is especially important now, on the eve of the key EU summit and voting in the British Parliament.

As it turned out, Britain and the EU pledged to be guided by the principles of a "single customs territory" and equality in the banking sectors. But what is most interesting – the document contains an important "curtsy" from the EU: Brussels decided to recognize the independent trade policy of the UK (which previously Europeans refused to do). This can be considered a significant concession, as Theresa May's opponents repeatedly reproached her for not being able to get the EU to approve this point. In general, the published document had a positive impact on the mood of traders: first, it convinced investors that de facto London and Brussels will work in a single customs zone; secondly, the declaration reduced the likelihood of a "hard" Brexit, as opponents of the British prime minister have lost an important trump card - because the requirement for independence in the issue of trade policy is now virtually irrelevant.

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Thus, the market today is balancing on the verge of two polar states: inspiring news from Brussels comes amid alarming signals from Madrid. Such a contradictory fundamental background is reflected in the dynamics of the GBP/USD price: bulls can not gain a foothold in the 29th figure, bears are not able to return the pair at least until yesterday's low. The market froze in anticipation: the events of the coming days will determine the price movement vector. Thus, if Spain backs down and agrees to discuss the issue of Gibraltar in the format of an additional protocol to the deal, the pound will jerk up, especially against the background of today's positive news from Brussels. If the Spaniards continue to insist on their own and jeopardize the deal, all the positive will come to naught - after all, what is the point in any declarations, if the general agreement is not even submitted to the EU?

I repeat - now the bill goes not for days, but for hours: before the end of the week, London must settle the issue with Madrid, otherwise the summit will again be postponed indefinitely. Accordingly, the pound is now in limbo, which can be described as "pan or gone".

The material has been provided by InstaForex Company - www.instaforex.com