4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - sideways.
CCI: -33.9113
The British pound continued to trade in emergency mode on Tuesday, December 8. The pair managed to stay below the moving average line, however, this does not mean anything at the moment. Over the past month, the quotes overcame the moving average many times, after which they calmly resumed their upward movement. Thus, some of the fall in the pound in the last two days can only be attributed to the loss of some traders' hopes for a trade agreement between London and Brussels. However, we have been warning for several months that the probability of concluding this transaction is no more than 5%. It was so from the very beginning. Here you should understand one very important thing. Ordinary traders and analysts are only aware of the information that the participants in the negotiation process "release". In other words, we can only judge progress in the negotiations by the information that gets into the media. However, we do not know very much, including the actual level of progress or lack of it. By and large, no one except the negotiating groups and the leaders of the EU and the UK is aware of all the points and conditions that are being discussed and that have already been agreed upon. Neither Michel Barnier nor David Frost reports to their respective parliaments. Thus, as we said in yesterday's article, both European and British MPs can easily block this agreement if they do not like something. And there will be no time to re-negotiate and agree on a new version of the deal. Plus, we should not forget that in the case of the European Parliament, it is necessary to satisfy the requests and wishes of 27 EU member states at once. Well, most of these countries will not make serious demands for a deal. However, France may make some serious demands. As one of the strongest states in the European Union, France will continue to promote its interests, and they relate very acutely to the "fish issue", which is the greatest "stumbling block" between Brussels and London, but not the only one. Representatives of France have already stated that they will not give in to the "fish issue" and will not betray the French fishermen, and do not intend to approve the trade agreement at any cost. Thus, first of all, it is difficult to say how many days does Michel Barnier and David Frost have to agree on a deal. Today is December 9, 22 days before the end of the "transition period". Secondly, it is necessary to take into account the requirements of all the most important EU member states, so that you do not have to rework the agreement later. And even if both conditions are met, the probability of signing a deal in 2020 is extremely low.
A couple of weeks ago, we already wrote that the European Union is not against continuing to negotiate in 2021. Moreover, we have repeatedly concluded that this would be an ideal option for both sides. Of course, subject to the extension of the "transition period". But even if its terms are not extended, and the Kingdom and the Alliance start the year in a "hard" Brexit, it is still better than completing negotiations and trading with duties and tariffs for many years, and possibly decades. The European Commission said this week that the EU is ready to negotiate in 2021. "If there is no deal on January 1, then we will have a situation without an agreement. This does not exclude that the negotiations may continue, and does not exclude that we can extend them based on the mandate given to us," said an unnamed official of the European Commission. So everything is as we expected. The EU is ready to continue negotiations even if there is no deal on January 1. And it probably won't be.
Well, Ursula von der Leyen and Boris Johnson continue to bombard the markets with "optimistic information". "We agreed that the conditions for signing the final agreement were not met due to the remaining significant differences on three key issues: ensuring a level playing field, fishing rules, and dispute resolution," the document says, displaying a joint statement by the head of the EC and the British Prime Minister. Also, von der Leyen and Johnson said that in the coming days they will personally try to save the agreement, although it is unclear how the negotiations between the two leaders will differ from the negotiations between Barnier and Frost, who are guided by the opinions of von der Leyen and Johnson? However, this may be a move for the public. They say that the leaders of the EU and the UK are personally trying to save the agreement.
Well, Boris Johnson, at the same time, comments on everything that is happening: "There is very little time left, and we are at the final stage, but as long as we believe that a deal is possible, we will continue to negotiate for as long as we can." That is, Boris Johnson, on December 8, it turns out that the timing still allows for negotiations. What about his statements that there is no point in negotiating after November 15? What about all his deadlines? In general, to be honest, the whole situation with the trade deal and Brexit, in principle, has long been like a pun. Or an epic with no end in sight. In this situation, market participants can only continue to wait for the denouement, which will eventually come.
And the pound will continue to remain in "storm" mode. The markets have no idea what will happen to the agreement and, as a result, to the British economy. They also don't understand whether they were doing the right thing when they increased their purchases of the pound over the past few weeks. Based on this, trading is extremely nervous right now. There is a formal trend, however, it is extremely difficult to work out. A fall in the pound, from our point of view, remains much more likely. We would work out exactly the option with the fall of the pound/dollar pair, especially since now the quotes are still fixed below the moving average.
The average volatility of the GBP/USD pair is currently 149 points per day. For the pound/dollar pair, this value is "high". On Wednesday, December 9, therefore, we expect movement inside the channel, limited by the levels of 1.3218 and 1.3516. A reversal of the Heiken Ashi indicator up signals a new round of upward movement.
Nearest support levels:
S1 – 1.3306
S2 – 1.3245
S3 – 1.3184
Nearest resistance levels:
R1 – 1.3367
R2 – 1.3428
R3 – 1.3489
Trading recommendations:
The GBP/USD pair on the 4-hour timeframe is now in a new round of downward movement. Thus, today it is recommended to stay in short positions with targets of 1.3245 and 1.3218 until the Heiken Ashi indicator turns up. It is recommended to trade the pair again for an increase with targets of 1.3428 and 1.3489 if the price is fixed above the moving average line. In general, high-volatility "swings" are continuing now. This is not a good time to trade.