GBP / USD: The assault of the 30th figure failed, the pair can go to 1.2860

The pound has entered again the zone of uncertainty on the eve of the most important negotiations between London and Brussels and the subsequent vote in the House of Commons. For two and a half years from the moment of the historic referendum, the British currency has repeatedly experienced strong volatility, which as a rule, on the threshold of the key stages of Brexit. Now the Briton responds to the information background regarding the prospects of the negotiation process. The stakes are too high: if Theresa May finds a common denominator between parliamentarians and the European Union, the deal can be approved as early as next week. Otherwise, negotiations will drag on for several months, and Brexit's date will have to be postponed to a later date (although May now rejects this scenario). In any case, the coming days for GBP/USD traders will be intense.

London and Brussels "exchanged pleasantries" yesterday. Hence, the representative of the European Commission said that the European side is ready to consider a possible proposal by the British to postpone Brexit, if only they give valid reasons for this. However, Downing Street categorically rejected such a scenario. A spokesman for the British government said that if the EU announced a proposal to extend the 50th article of the Treaty of Lisbon (which allows for the postponement of Brexit), Britain will say no. In other words, the proposal to postpone the withdrawal of the country from the Alliance is not considered by the parties as a matter of priority - it is rather a backup plan, which will be relevant only if the British parliament fails to vote for an updated draft of the transaction.


At the moment, the sequence of actions is as follows: on Monday, Theresa May presents her "Plan B" after consulting with the leaders of parliamentary associations. Then, she must agree on a renewed deal with Brussels if she undergoes significant changes on key issues, and proceed to a vote on January 29. In my opinion, the "European" stage of negotiations is the most difficult in the process of the forthcoming agreement. On the one hand, the main negotiator from the European Union, Michel Barnier, said yesterday that the European Union is ready for a "more ambitious deal." He did not clarify the meaning of his expression, but the general message is obvious: Brussels is ready to sit down at the negotiating table, despite its "principled" position regarding the inviolability of the agreements reached. On the other hand, the market doubts it.

In this vein, the written appeal of the EU leadership to the British parliamentarians is indicative, which was sent to London on the day of voting on the first draft of the deal. In this letter, Brussels explained its approach to Brexit's main unsolved problem: the regime of border control between Ireland and Northern Ireland after the country's withdrawal from the Alliance. The letter did not have the main thing, not even a hint of the provision of legal guarantees to Britain regarding the time frame of the backstop. Brussels limited itself to the phrase that the European Union would not use this regime "beyond the strictly necessary period." This is a rather vague wording, which, among other things, has no legal force. Also, the European Union has once again confirmed that it is ready to extend the transition period.

Now, the fact that it is safe to say that this appeal is useless. From this, we can make an obvious conclusion that no verbal exhortations of Europeans can convince opponents of May, only legal guarantees regarding the mode of action of the back-stop will shift the situation from a dead end. "Are you ready to go for it in Brussels or not?" is an open question. That is why today, pessimism has returned to the market regarding the prospects for the upcoming talks and the pound, in tandem with the dollar, has suspended its growth, saving it from the psychologically important mark of 1.30.

If we talk about macroeconomic statistics, then the situation is quite contradictory as the British inflation reached the predicted level. The core consumer price index even exceeded expectations, being at the level of 1.9%, while retail sales were clearly disappointed with -0.9% m/m and 3% y/y compared to the forecast of -0, 8% m/m and 3.6% g/g.


However, traders actually ignored these releases. Brexit is still a priority for the market. Hence, until the end of the negotiation process, the pound will focus only on this news background. This means that it is almost impossible to predict the price movement of GBP/USD, since any comment by representatives of London and Brussels can turn the price up or down, depending on the context. Whereas today, GBP/USD bears can easily pull the pair to the first support level of 1.2860 against the background of profit taking on the eve of restless holidays.

The material has been provided by InstaForex Company -