Brexit – Deal or No Deal? There Is Still Hope For The Pound!

Brexit- The Drama Is Yet To End

by Bogdan Giulvezan

Last Friday, UK Prime Minister Boris Johnson apparently pulled the plug on EU – UK trade deal negotiations, saying that the progress made thus far is insufficient. However, he also mentioned that talks may continue if there’s “some fundamental change of approach”.

But there may still be hope for a deal: today, Lord Frost, UK’s chief negotiator will speak on the phone with his EU counterpart, trying to reach a compromise. It looks like the Pound perceives this as bullish, jumping close to 100 pips and testing the resistance at 1.3000.

According to reports, a Covid-19 vaccine may be available in the UK, with up to 40 million doses being stored in Belgium, awaiting official sanctioning. According to the Daily Telegraph, Astra Zeneca and Oxford University are also in the final stages of developing a vaccine. Considering that Covid-19 had a negative impact on the economy, a vaccine that would put an end to the pandemic would be very well received by the markets but it’s probably a bit early to get our hopes up.

Key Events for the Week Ahead

Fed Chair Powell is scheduled to speak via satellite Monday, Oct 19 at 1:00 pm GMT at the International Monetary Fund’s annual meeting. He will participate in a panel discussion on the topic of digital currencies and cross-border payments. It’s unclear whether this will have a notable impact on the US Dollar or other fiat currencies, but it’s always a good idea to be aware of this type of event because volatility may increase.

Thursday, Oct 22, Bank of England Governor Bailey will speak at the Waterline Summit. The event will be hosted online, due to the current pandemic but volatility is often experienced when heads of central banks make public appearances.

The week finishes with a series of PMI (Purchasing Managers’ Index) releases scheduled for Friday: the EU and UK Services and Manufacturing PMIs, as well as the Manufacturing PMI for the US. These are all leading indicators of economic health and usually have a medium impact on the respective currency, with higher than anticipated numbers strengthening it.

The Technical Scene – GBP/USD

Recent Pound strength took GBP/USD swiftly above the 100-period EMA (4-hour chart) and into the key resistance at 1.3000. The way price behaves here will probably determine the next short-to-medium term direction.

The support at 1.2870 rejected price several times in the recent period, thus we can consider it a good target if the pair fails to surpass 1.3000. On the other hand, a clean break of 1.3000 would make 1.3080 the first target, considering that the level was the peak of the “mini” uptrend started in September, at 1.2690 support.