FX.co ★ GBPUSD tight brexit deadlines lead to high price fluctuations in the market

The UK which emerged as the winner yesterday for the rapid approval of the COVID vaccine from Pfizer and Biotech was hit hard by Brexit.

The pound collapsed immediately after Bloomberg reported that Michel Barnier had informed EU ambassadors that a deal might not take place. Due to the strict time limit for trade negotiations such as harsh statements serve as a kind of "bomb" in the market, which led to an almost instant weakening of the British currency by 150 points (-1%).

This is not the end of the noise about Brexit, at a video meeting yesterday with the 27 ambassadors of the Euro bloc, Michel Barnier rejected the request of the ambassadors to get acquainted with the key part of the agreement material until there is a deal. Some of the ambassadors present expressed concerns that Barnier might give too much relief to Britain and leave very little time to scrutinize the agreement.

The French Ambassador warned Barnier against making too many concessions simply because time is running out. France's position was supported by Belgium, the Netherlands and Denmark, which could result in a veto of the deal.

Once any deal is done, EU leaders must approve it unanimously so that it will take effect, meaning Barnier must keep all EU members on Board.

During the video meeting, the EU ambassadors made interesting words that the outgoing deadlines and the lack of an agreement will not lead to the end of the world, and negotiations can continue in 2021. This would mean that trade with the UK would be subject to tariffs and quotas after the post-Brexit transition period ends.

Barnier noted that his role in this process should end this year. If the talks were delayed until 2021, the new team would have to take the baton and the EU would have to give it a new negotiating structure, while at the same time fighting the disruption of a no-deal outcome, the note said.

The second part of the diplomats said that the opinion of France does not coincide with the opinion of the majority of EU countries and that Barnier's briefing was intended to calm nerves in Paris.

In response to the ambassador's concerns, Michel Barnier said that he understands their concerns but adheres to the negotiating mandate given to him by the European Union. However, he made no promises as to whether he would allow the draft texts to be examined.

To sum up, the coronavirus pandemic has put the United Kingdom on course for the deepest economic downturn since the Great Frost of 1709 and the crisis is already underway.

Even if Britain enters into a free trade agreement with the European Union, 4% of the country's GDP will be taken out of the economy in the long run compared to the period where the economy would have been if Brexit had never happened. A hard Brexit means that world trade organization rules will be adopted and this will entail a further 1.5% loss of GDP.

Following from the above material, investors have something to fear.

In terms of technical analysis, we can see high activity that led us to a series of inertial fluctuations. So the reason for the sharp change in the pound sterling exchange rate is already known to us, this is Brexit. Initially, the British currency rushed down, which led to the return of the quote to the previously known support level of 1.3300. As a result of a sharp change in the price over a short period of time, an oversold factor appeared where the level of 1.3300 played the role of regrouping trading forces, which led to a reduction in the volume of positions for sale. Along the way, the ADP report on employment in the United States supported the position of reducing the volume of sellers due to not the best statistics.

As a result, there is a reverse price movement which leads to a subsequent movement within the boundaries of the previously passed side channel 1.3300/1.3400.

As for the market dynamics on December 2, this is one of the most active days in recent times. The volatility was 152 points which is 27% higher than the average level. The last time such high dynamics were observed in the market was in early November, when the voting process for the presidential election in the United States was underway. The coefficient of speculative operations is off the scale, which is confirmed in the market by impulse price jumps.

Looking at the trading chart in General terms (daily period), it is clear that the quote is at the conditional peak of the upward movement from the middle of September. In simple words, we are at the top of 750 points. Less than 100 points remain until the local maximum of the medium-term uptrend is updated.

Today, in terms of the economic calendar, the final data on the index of business activity in the service sector of Britain were published, where the statistics came out slightly better than expected. The index fell from 51.4 to 47.6 points with a forecast of 45.8.

During the US session, the weekly data on applications for unemployment benefits in the United States were published, where previous data were revised for the worse and current indicators. On the contrary, it came out better than expected.

The number of initial applications for benefits went down by 75 thousand from 787 thousand to 712 thousand, only 3 thousand were expected.

The volume of repeated applications for benefits went down immediately by 569 thousand from 6,089 thousand to 5,520 thousand, what was expected were only 156 thousand.

At the time of publication of statistics for the United States, the market completely ignored them but perhaps the reaction will come in a few hours.

Analyzing the current trading chart, we can see that the upward pace set yesterday from the level of 1.3300 led us not just to the subsequent coordinate of 1.3400, but to the update of the local maximum. Once again, we received confirmation of the breakdown of the upper border of the 1.3300/1.3400 side channel.

There are only a few points left before the local maximum of September 1 – 1.3482, the medium-term uptrend, which means that now there may be a sharp reduction in the volume of long positions, which will lead to a technical correction towards the level of 1.3400, or we will resume the trend structure which is not quite logical in light of all the problems (BREXIT – COVID).

There is an assumption that now there is a game of speculators and everything can change quickly.

It is worth noting that the area of interaction of trade forces is based on coordinates:

1,3482 – 01.09.20

1,3514 – 12.13.19

In order to confirm the intentions of the bulls for an uptrend, it is worth seeing a price fixing higher than 1.3550 to 1.3570 on the daily period.

A reduction in the volume of long positions may occur in the area of 1.3470/1.3520.

Due to the fact that the market is highly susceptible to information noise, I strongly recommend monitoring the information space for burning topics: BREXIT; COVID.

Information can be extracted from our site - the Analytics section or directly from the media - bloomberg.

Indicator Analysis

Upon analyzing different sectors of timeframes (TF), we can see that the indicators of technical instruments on the minute, hour and day periods time frames are giving signal to buy, which is due to the rapid upward movement in the market and the update of local highs.

Weekly volatility / Volatility measurement: Month; Quarter; Year

The measurement of volatility reflects the average daily fluctuation, calculated for the Month / Quarter / Year.

(December 3 was based on the time of publication of the article)

The dynamics of the current time is 118 points, which is already the volume of average volatility. Speculative hype may continue to catch up with market activity.

Key Level

Resistance zones: 1,3480 - 1,3514; 1,3600; 1,3850; 1,4000***; 1,4350**.

Support areas: 1,3400*;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