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Hard Monday: the pound is again under pressure from Brexit

Markets again succumbed to despondency. Italy and Brexit increased their pressure, as the likelihood of the worst-case scenarios is growing "not by the day, but by the hour". The pound opened the trading week with a significant southern gap, pulling along many currencies, primarily the euro, which paired up with the dollar the annual minimum and settled in the 12th figure. By the way, the US currency feels very confident, the dollar index is now in the region of 97.20 points. And yet, at the moment, the dynamics of GBP / USD and EUR / USD is not determined by the greenback. The pair falls to the bottom due to British-European political problems.

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The most disturbing news comes from Britain. First, on Friday, British Transport Minister Jo Johnson, brother of the former British Foreign Minister Boris Johnson, resigned. He left his post for several months to protest the Prime Minister's "too soft" actions on Brexit's question. Actually, the Minister of Transport quit for the same reason. According to him, the British in the referendum voted for completely different ideas and proposals compared to how Theresa May interpreted them in the negotiations. Therefore, he proposed to hold a repeated plebiscite on this issue in order to prevent "incredible stupidity." So, in his opinion, everything goes to the fact that Brussels will either make Britain "a vassal of the European Union", or plunge it into complete chaos, forcing the country to leave the EU without a deal. Johnson noted that the British hardly voted precisely for such an alternative, therefore, at the moment, it makes sense to ask again their opinion on this issue.

According to political experts, the resignation of Johnson in the aspect of recent events can lead to quite serious consequences. In particular, according to the British press, four more ministers may follow Johnson's example, while tomorrow, November 13, there should be a Cabinet meeting, at which May will try to agree on a common bargaining position (most likely, it will not happen). The situation is further complicated by the fact that Brussels has previously rejected the proposals of the prime minister regarding the Irish border. Although this information is in the nature of rumors, it was published by a rather influential British publication. Therefore, traders took it quite seriously.

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So, according to sources, May offered to create an independent control mechanism that would solve the Irish border issue. However, Brussels noted that European regulations do not provide for the creation of an additional body for control and settlement of disputes, especially since this function is performed by the European Court. According to the newspaper, many British politicians did not appreciate this idea. In particular, we are talking about the supporters of the "hard" Brexit among conservatives and members of the Democratic Unionist Party.

In other words, the key issue of the "divorce process" again remained in limbo, although less and less time remains. By the end of November, the parties must reach at least a framework agreement in order to agree on all the details by December and hold a decisive summit, after which Britain and the EU countries should agree on the deal at the legislative level. All this must be done before the end of March next year. Apparently, in the near future, the parties will again discuss the issue of extending the transition period. Let me remind you that in October, Brussels suggested that London roll over its current relationship for another 21 months after March 2019. It is noteworthy that Theresa May did not reject this idea, apparently, anticipating a likely stalemate in the negotiation process.

Thus, cautious optimism about the prospects for Brexit was replaced by habitual pessimism. Last week, there were rumors that the May government would soon agree on a draft agreement to give green light to the November EU summit. But Johnson's resignation, the DUP's obstinacy and the position of Brussels again mixed up all the cards, increasing the risk of "tough" Brexit. If today or tomorrow, there will be further resignations of ministers, the pressure on the pound may increase in many ways. Together with the dollar, it may return to annual minimums.

Here, it is worth noting that, in the question of Brexit, the "weather" is very changeable. We can recall more than a dozen situations in the past two years when the pessimistic moods of traders have drastically changed to the opposite. Again, the published information that the EU rejected the proposals of May is unverified. If in the near future, reassuring signals will come to the market, the pound will easily make up for lost positions.

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Now, a few words about technology. Technically, the price is located under the "Parade of Lines" signal of the Ichimoku Kinko Hyo indicator and between the middle and lower lines of the Bollinger Bands indicator. This indicates the strength of the downward direction. The support level is the lower line of the Bollinger Bands indicator, which coincides with the minimum of the year, 1.2695. The resistance level is the lower limit of the Kumo cloud of the Ichimoku Kinko Hyo indicator and the price is 1.2980.

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