Yesterday, the pound sterling recouped some of its losses after a slump even despite the trade deal deadlock. Investors hope that the parties will come to a conclusion.
On Monday, the pound sterling declined by 1.5% to trade at 1.3223. This is the biggest drop in the last three months.
Let's find out the main reasons for the pound's recovery.
Market participants hope that there will be progress in the negotiations. This, in turn, may restrain the unprecedented slump in the British pound. The UK is trying to find a compromise. Prime Minister Boris Johnson has changed his rhetoric and is planning to make concessions on the internal market bill. Notably, at the beginning of the negotiations, Boris Johnson threatened to leave the EU without a trade deal.
After the second phone conversation with Ursula Von Der Leyen, the UK's Prime Minister is planning to meet face-to-face with the President of the European Commission to save the trade deal.
"We agreed that the conditions for finalising an agreement are not there, due to the remaining significant differences on three critical issues: level playing field, governance and fisheries. We asked our chief negotiators and their teams to prepare an overview of the remaining differences to be discussed in a physical meeting in Brussels in the coming days," a joint statement published after their telephone exchange reads.
Moreover, Boris Johnson may sit at the negotiating table with Angela Merkel and Emmanuel Macron.
While Johnson has decided to deal with the negotiations himself, the current EU negotiator, Michel Barnier, says that there is time only until Wednesday. The EU summit begins on Thursday.
According to the technical analysis, the pound/dollar pair recovered by 1.35% to 1.3400 after a sharp decrease. After that, the pair stopped and declined again.
We can see that speculators are weighing on the quote. Their activity rose amid panic in the market.
On December 7, market dynamics totaled 213 pips that is 80.5% above the average level. Such a high volatility level was last logged at the beginning of November during the presidential race.
On the daily chart, we can see that despite significant fluctuations, the pound sterling is still at the peak of the mid-term uptrend. It means that the British pound is still overbought.
Today, the macroeconomic calendar is not rich in important reports from the UK and the US. That is why market participants are focused on the news flow.
Thus, the UK began its first vaccination campaign against the coronavirus. The country has only a limited number of vaccines. However, the fact that the vaccination has begun has a positive influence on the market. Nevertheless, traders are more interested in the news about Brexit.
According to the current trading chart, there is a price fluctuation of 40-50 pips. It means that speculators took the wait-and-see approach waiting for new information about Brexit.
At the moment, it is difficult to predict the price movement using the technical analysis because of high speculative activity. At the same time, market patterns could be applied only to a number of main points such as local overbought/oversold conditions and levels of price interaction.
That is why all trading decisions depend on news.
Traders can keep abreast of the latest news using the analytics section on our website as well as browsing such websites as Bloomberg, Wall Street Journal, and Reuters.
Positive news about the UK-EU trade negotiations boosts the pound sterling. Negative information such as lack of progress or the UK's no-deal withdrawal may weaken the British currency.
Nevertheless, if the price fixes below 1.3300, we will have a sell signal with the target at 1.3225. Before the fixation, the price is likely to hover between 1.3300/1.3350/1.3400.
Indicator analysis
Analyzing various time frames, we can see that technical indicators are still under the pressure from speculators' activity. On a minute and hourly charts, there are sell signals.
Volatility for the week/Measurement of volatility: month, quarter, year
The volatility measurement reflects the average daily fluctuation calculated for a month/quarter/year.
At the moment, the market dynamics is 76 pips. Speculators are very active. This is proved by a high coefficient of speculative positions. Once fresh news appears, the market accelerates.
Key levels
Resistance levels: 1.3400*; 1.3600; 1.3850; 1.4000***; 1.4350**.
Support levels: 1.3300**; 1.3175(1.3200); 1.3000***; 1.2840/1.2860/1.2885; 1.2770**; 1.2620; 1.2500; 1.2350**; 1.2250; 1.2150**; 1.2000*** (1.1957).
* Periodic level
** Range level
***Psychological level