Why the pound rose. New political declaration - a lifeline for Theresa May or an anchor?

The British pound rose against the US dollar, after news broke out concerning, however, indirectly, Brexit, but carrying the hope that the British Parliament would approve the deal.

As it became known, the negotiators from the UK and the EU agreed on the text of a declaration on future relations between the United Kingdom and the European Union. The pound rose sharply after European Council President Donald Tusk said that the agreement now requires the approval of EU leaders. In this regard, he has already sent the text to representatives of all 27 EU countries. Tusk noted that the text of the political declaration agreed at the level of negotiators and now needs the approval of the EU leaders.

The text of the declaration describes the future relationship between the UK and the EU. It is expected that the declaration will be approved on Sunday, which will allow progress in the Brexit agreement.

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The declaration provides for an ambitious and balanced economic partnership between the UK and the EU. However, the UK needs to resolve the Northern Ireland border issue under the new agreement, which again is not easy. The text states that the United Kingdom will seek for cooperation with various European agencies, which will make it possible to consider the possibility of harmonizing the domestic rules with EU rules in the field of medicine, circulation of chemicals, as well as in the field of aviation. It is also noted that the partnership between the UK and the EU will be based on a single customs territory, which will save the parties from having to check the origin of goods at the border.

All anything, but there is one nuance. But do not confuse the concept of "declaration of future relationship" and "agreement on Brexit".

The current political declaration is not legally binding. In other words, its approval and signing will not allow to resolve the differences that exist in the UK Parliament, as they hinder the signing of the agreement with the EU. Also, it will not facilitate the task of Theresa May in the struggle for approval in the British Parliament of such a deal on Brexit.

The signing of the text of the declaration will make it possible to take only a certain step towards the beginning of official negotiations on a free trade and security agreement after the UK leaves the bloc on March 29, 2019.

If the signing of the above-mentioned declaration fails, such an outcome can "sink" the British Prime Minister, who does not know how to advance the agreement on Brexit through the Parliament.

As for the technical picture of the GBPUSD pair, the buyers of the pound need to stay above the weekly resistance level of 1.2880 today. Only then can we expect to continue the upward correction to the highs of 1.2970 and 1.3040. Despite the ambitious plans of buyers, the probability of failure to sign the declaration this weekend will limit the upward trend in the pound, and trading by next Monday has a huge chance that it may start with a large gap.

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