Guest Author Bogdan Giulvezan
As many of us already know, the UK left the European Union on January 31, 2020, three and a half years after UK citizens voted to do so. An economic separation will follow the political breakup, on 31 December 2020 and this will also mark the UK’s departure from the EU single market and customs agreements.
The time between January 31 and December 31 is needed for the two parties to reach deal agreements regarding their future economic relationship. However, negotiations may come to a screeching halt as British Prime Minister Boris Johnson recently warned that the UK may leave the negotiations table unless the EU “rethink their current positions”. He further added that a no-deal Brexit would be a “good outcome for the UK”. On the other hand, the European Union accused the United Kingdom of failing to negotiate with seriousness.
Chief negotiators from the UK and EU are due to meet Tuesday, September 8 for the eighth round of talks. Without a deal in place, 2021 will come with several economic barriers between the two parties.
The Technical Scene
This kind of turmoil is usually reflected on the charts and that is exactly what we can see happening now with the GBP/USD pair. After failing to remain above 1.3400 resistance, the Pound lost traction in light of recent developments and this, coupled with US Dollar strength generated by better than expected U.S. Unemployment Rate (forecast 9.8%, actual 8.4%), the pair started to drop rapidly.
Currently, the pair is trading around 1.3150 but it doesn’t show signs of recovery, at least on the Daily charts (see below). The resistance zone around 1.3400 stopped price on several occasions and will probably continue to act as an important S/R level in the future, while the Stochastic is showing strong bearish momentum and the MACD is just crossing to the downside. All these are bearish signs, so it’s likely to see a descent into the important psychological level at 1.3000 (price hugged this level several times in the past so we can deem it a technical level as well as psychological).
Assuming that 1.3000 is broken, the next target will become the bullish trend line seen on the chart, followed by 1.2790 (1.2800) and 1.2690 (1.2700). Depending on the outcome of tomorrow’s trade talks between EU and UK negotiators, we may see these targets reached sooner than expected but keep in mind that in the Forex world almost anything is possible, thus prepare for an alternate scenario where we see the recent Pound losses erased.