The pound showed increased volatility on Wednesday. The British currency "walked" by almost 150 points: it settled at a high of around 1.3063, while the lowest level was 1.2916. Despite the fact that the GBP/USD bears reached the bottom of the 29th figure, they failed to gain a foothold in this price area. The pair returned to the borders of the 30th price level during the US session. Sellers have repeatedly tried to settle below the support level of 1.3000, but traders bought the pound each time, returning it back home. This suggests that bearish positions look uncertain, and there is no need to rush to sell the pair. First of all, you need to understand the reasons for this volatility.
However, it's not hard to guess: Brexit is usually involved when there is any abnormally high volatility in the GBP/USD pair. London and Brussels still cannot find a compromise on the issue of concluding a trade deal, while time is running out: the transition period ends on January 1, and all points of the future agreement must be agreed upon by mid-November, when the next EU summit dedicated to the prospects for Brexit will take place.
Let me briefly recall the background of recent events. The negotiators need to settle the most critical issue of fisheries policy. The process on this issue has been prolonged for way too long, in fact, for several years: at first it was discussed in the framework of negotiations on a general agreement on the withdrawal of Great Britain from the EU, but now it is being discussed in the context of a trade deal. Some EU countries (in particular, France, Belgium, the Netherlands, Denmark) want to maintain the current free access to British waters. On the other hand, London wants to maintain leverage on Brussels, insisting that the issue of access to British territorial waters should be discussed/quoted on a regular basis, that is, annually. Disputes and disagreements around this issue have been spinning for several years.
In the current round of talks, the parties were supposed to focus on resolving this problem. According to rumors, Brussels is ready to make certain concessions in this area in exchange for a compromise on the Irish border and compliance with European standards. As a compromise, London offered to accept the Norwegian version of the deal, according to which fishing quotas would be agreed annually in common fishing zones. However, this proposal was categorically rejected by the French. They flatly refused to make concessions, thereby blocking further negotiations.
According to the British press, negotiators even turned to the German Chancellor to influence the situation. The stalemate arose as early as Monday, while the next round of talks ends on Thursday. There was information that the situation was supposed to get off the ground, but this did not happen. Moreover, the head of the British delegation, Michael Gove, said that "the UK government will not back down on fisheries policy." At the same time, he criticized all the proposals of the European side in a rather harsh form. Gove stressed that Britain remains an independent coastal state. And the fisheries policy, accordingly, will be determined by London independently.
After such a sharp statement, the pound collapsed across the entire market - including in tandem with the dollar. However, literally a few hours later, the pound partially regained the lost ground. The GBP/USD bears were unable to develop the declining trend, while buyers quickly seized the initiative. The fact is that after Gove's sharp statement, information of an unofficial nature was published in the press. It became known that, firstly, the negotiations will continue in Brussels, and secondly, the consultations between Berlin and Paris on the fishing issue are still ongoing. As for the bellicose statements by the head of the British delegation, they must be taken in the context of Boris Johnson's negotiation tactics
Thus, the current situation speaks for several things. First, the pound remains hypersensitive to Brexit issues. The pound fell against the greenback and then rose regardless of the US dollar index, which was steadily going up throughout the day. The next takeaway is that GBP/USD bears are vulnerable. Newspaper rumors were able to neutralize the pessimism of the official statement of the British official. This suggests that the market is inclined to believe in the best, while everything that happens is regarded as a kind of play of nerves.
From a technical point of view, the bears impulsively broke through, but could not gain a foothold below the support level of 1.3000 - at this price point, the middle line of the Bollinger Bands indicator coincides with the upper and lower borders of the Kumo cloud, which shrank to one lines on the daily chart. In the medium term, we can consider buying the pair while having the main target at around 1.3110 - this is the upper Bollinger Bands line on the same timeframe.