GBP/USD. Result of the week. Michel Barnier: the UK refused to extend the terms of the "transition period"

24-hour timeframe


The British pound was trading fairly calmly against the US currency last week. Only on Tuesday, the pound/dollar pair showed quite high volatility, about 200 points, and on all other days, there were standard 100-130 points. Judging by the 24-hour timeframe, it is now impossible to say unequivocally that the upward trend is complete. Moreover, the lines of the Ichimoku indicator are now lined up in such a way that it is very difficult to say what is happening on this chart right now? Formally, the price is located above the Kijun-sen and Senkou Span B lines, so the pair has prospects for an upward movement. However, the quotes are only slightly higher than the Ichimoku cloud, and it is not that they are fixed higher, but the cloud itself has gone below the price. The Bollinger Bands have narrowed to a minimum and now signal a sharp drop in volatility, the absence of a trend movement, and the possible beginning of a flat. So, in the long run, the situation is confusing. We still recommend trading on a 4-hour chart, where the picture is clearer. The macroeconomic and fundamental background is still ignored by market participants.

Meanwhile, the second round of talks between the groups of Michel Barnier and David Frost on the future relationship between Britain and the EU after Brexit started this week. Earlier, Brussels and London agreed to continue negotiations in video format and hold a new round every month. However, the negotiation process that ended this week showed that the parties continue to be at different poles of the planet, despite all the assurances about "progress in the negotiations". Michel Barnier on Friday officially announced that London refused to extend the duration of the "transition period". Thus, the final break between the Kingdom and the Alliance will occur on December 31, 2020, no matter what. The head of the EU negotiating team also accused Britain of delaying the process of negotiating future agreements that will take effect after December 31. Moreover, according to Barnier, the UK does not deal with the issues necessary to negotiate a trade agreement. "The UK does not want to make serious commitments on a number of fundamental issues," Barnier said. The diplomat also listed areas where progress has not been made: equal and fair terms of cooperation, post-Brexit partnership management, judicial cooperation, and access to fishing waters. If the first two areas are not obvious, the last two are absolutely clear. The division of UK fishing waters has been a stumbling block from the very beginning, since the EU wants to maintain access to them and have the right to fish in any quantities, which, of course, the UK wants to avoid, so that the caught fish can then be sold to the EU. The stumbling block with the judicial system is also obvious. The EU wants the European Court of Justice to have the final say in resolving any disputes, which, again for obvious reasons, London does not want. Thus, Michel Barnier summed up: Britain has set its reluctance to extend the "transition period" very short deadlines for negotiations, while there is no progress in the negotiations themselves, and London "does not particularly want to move forward". Barnier also noted that London "refused" to compromise on creating conditions for doing business, on the free movement of people, goods and services, on the development of veterinary and sanitary control regime on the border between Ireland and Northern Ireland.

Meanwhile, Michel Barnier himself believes that in the context of a pandemic, the parties need to mitigate the economic shock. "It is unacceptable to amplify it with the shock of breaking economic ties without an agreement," the EU's chief negotiator said. According to Barnier, in early June, the European Union will reassess the situation depending on the progress made, but regardless of the results, the UK will not participate in the long-term plan for economic recovery after the pandemic. The main complaint to London calls the lack of desire to compromise and the lack of proposals put forward.

At the same time, the "coronavirus" pandemic in the UK is not slowing down. Despite reports that the pandemic is receding in many EU countries, in Britain the number of deaths from the virus over the past day was 684, which is 68 more deaths than a day earlier. The number of new cases of "coronavirus" infection is 5,386, which is again more than the day before. The total number of infected people in the country is already 144,000, the number of deaths - almost 20,000.

The British pound has been experiencing market pressure again in recent weeks, but the reasons do not lie in the scale of infection or in macroeconomic statistics. This week in the UK there were both bad reports and good ones. However, market participants did not react to either the first or the second. There are very few fundamental news and events in the Foggy Albion right now. For example, we do not receive any information about the stimulus packages for the British economy or about the actions of the government or the Bank of England. Therefore, market participants are deprived of fundamental feed.

Trading recommendations:

On the 24-hour timeframe, the pound/dollar pair is adjusted against the upward trend. However, the more accurate picture is now on the 4-hour timeframe, which we recommend considering first. The reversal of the MACD indicator down on the current timeframe signaled the beginning of a correction. All targets are very long-range, formed during the panic. It is unlikely that they will be worked out this month.

The material has been provided by InstaForex Company -