The pound/dollar pair has faced the price turbulence. The previous week's high was logged at the level of 1.3624. However, yesterday, the pair declined to 1.3187. Traders closed their yesterday's positions in the area of the 34th pattern, showing high volatility. In other words, the pound sterling is hovering within the 400-pip channel. However, the main trend is still unknown. The market reaction to the news flow is really strong. At the same time, the fundamental analysis of the pair unveils controversial facts.
Earlier, Brexit was the main issue that shaped the pair's movement. At the moment, a new strain of the virus that causes COVID-19 may influence the pair much more significantly. Notably, traders' reaction to the news was mixed. Thus, amid pessimism about Brexit, traders hope that the problem will be settled in the near future.
At the same time, scientists have recognized that the new strain of the coronavirus is much more contagious than the usual one. Scientists from NERVTAG (The New and Emerging Respiratory Virus Threats Advisory Group) said that children may also catch this infection. Thus, the number of infected people under 18 years could significantly rise soon. However, the World Health Organization has calmed down people, saying that the developed vaccines are also efficient against this new strain. Thus, there is no need to develop new vaccines.
This information failed to push the pound sterling lower. Moreover, the political crisis caused by Brexit is approaching its peak.
The fact is that the deadline of December 31 is approaching. In any case, the sides will not have enough time to ratify the deal. The European Parliament has already proposed to use a certain legal mechanism that will allow the agreement to be approved later, that is after it comes into force. However, the negotiators have not been able to agree on the notorious issue of fishing, which is the main obstacle to the conclusion of the trade deal. Over the past few days, there have been rumors that the parties are ready to reach a consensus. David Frost and Michel Barnier are discussing the reduction of fishing quotas for EU fishing enterprises that operate (will operate) in UK waters. According to Politico, Brussels wanted to offer a 25% cut for the next 6 six years. However, France did not support this offer as it might suffer more than other EU countries.
The UK wants to settle the issue this year even without a deal. Meanwhile, the most influential representatives of the European Parliament have already appealed to Boris Johnson to extend the current interim agreement, which ends on December 31. The European Parliament mentioned both the new strain of coronavirus and severe consequences that the UK may face. In other words, the European Parliament expressed its intention to extend the transition period. Notably, the similar proposal was made by members of the British Conservative party. However, Boris Johnson rejected all the proposals.
The pound/dollar pair is trading amid great uncertainty. The panic caused by the coronavirus outbreak has been overshadowed by the trade deal between the UK and the European Union. According to the British press, Michel Barnier is now trying to link the EU's right to fish in UK waters with Britain's access to the bloc's single market. Thus, the countries have all chances to come to an agreement. However, the hard Brexit scenario is also highly possible. The information is very controversial.
In other words, at the moment, it is impossible to estimate the situation in order to make a trade decision on the pound/dollar pair. In my opinion, the sides may sign an agreement at the last moment. After that, the pair may soar up to 38th and even to 40th price level. However, in the short term, it is not recommended opening long positions at least until Thursday/Friday. Thus, it is better to open sell positions with the target at 1.3360 (yesterday's low). The general market situation is rather vague as the parties may come to various solutions, including an agreement, a no-deal Brexit, and an extension of the transition period.