FX.co ★ GBP/USD. Brexit negotiations have entered a crucial phase

The pound is falling like a stone again. And this is not the case when the southern momentum of GBP/USD can be used as a reason to open longs. The risk of a deeper drop is quite high, despite the current price pullback. Therefore, on the last trading day of the week, it is best to take a wait-and-see attitude, as the passion for Brexit reaches its peak.

The British currency has been subject to strong volatility since the beginning of December, showing quite powerful price fluctuations - both in the direction of growth and in the direction of the south. Most recently, on December 4, buyers of GBP/USD updated this year's high at 1.3538, while today sellers were trying to get close to the borders of the 30th figure. In other words, the pair "walked" almost 500 points down during the week. However, the bears also had to be nervous, as corrective pullbacks reached 150-point values. Therefore, it is not necessary to talk about any reliability in the context of long or short positions: by and large, the pair's traders are now playing the lottery by entering the market. It is impossible to predict which way the pendulum will swing in the end, despite the bellicose and pessimistic statements of Boris Johnson and his European colleagues.

It is worth recalling that the Brexit epic has been going on for the fifth year since the historic referendum that took place in June 2016. Throughout this time, the pound has repeatedly experienced increased price turbulence during key decision-making periods. For example, powerful price spurts were observed in October 2018, when the parties were one step away from signing a deal. The price jumped from the 33rd to the 42nd figure in a few weeks. At the end of 2019, the volatility was even stronger – if in September the price was at the level of the 19th price level, then traders met the New Year in the area of the 32nd figure. Almost fifteen hundred points in just a few months.

And each time, the price turbulence was due to Brexit. The mood of investors ranged from "everything is lost, there will be no agreement" to "the deal is about to be signed". In each case, the pound reacted sharply to numerous newspaper rumors, comments from top politicians, and statements from negotiators.

Now events are not developing so rapidly, although the overall situation is similar. London and Brussels are currently unable to agree on three key issues: fishing regulations, competition rules, and dispute resolution mechanisms. The most difficult issue is fishing. London rejects all proposals from the European side. The British consider unacceptable the requirements of the European Union to provide access for European fishermen to British fishing areas. According to the head of the British negotiating group, such a model is incompatible with the status of the UK as an independent coastal state.

Brussels, in turn, insists on its own terms. Many compromise options were rejected during the negotiations. In particular, London rejected the model of "zonal binding", when the British quota shares would depend on the length of stay of fish populations in the waters of the Kingdom.

London considers any option offered by the Europeans through the prism of its conditions. Boris Johnson is lobbying for an annual review of the relevant clause of the deal on the issue of fishing. However, the European Union does not agree to such a scenario, insisting on linking the possible revision of the above paragraph to the entire trade agreement. In other words, if one point of a trade transaction is corrected, the parties can also change other sections of the agreement.

Let me remind you that the negotiators are currently holding another round of talks. The deadline is set for December 13, which is next Sunday. And judging by the statements of key politicians, this round will repeat the fate of all previous ones. European Commission chief Ursula von der Leyen said today that the talks appear to have reached an impasse. According to her, the absence of an agreement is becoming an increasingly likely scenario. A similar statement was made by Boris Johnson, who called for preparing for a no-deal scenario.

There are two options: either we are witnessing a political game in which the stakes are rising every day, or Britain is really ready to switch to the "WTO rails", with all the consequences that follow. The intrigue will be resolved in the next few days, most likely on Sunday (perhaps even on Saturday). If the parties do not come to a decision but extend the negotiations, the chances of a deal will remain. In this case, the pound paired with the dollar can show a northern correction, up to the 34th figure. If the parties declare that they have exhausted all possible options for reaching a compromise, the British pound will lose several figures, falling first to the base of the 30th figure, and then to the support level of 1.2890. It is not known which of the above scenarios will be implemented. Therefore, it is very risky to trade the GBP/USD pair now, as the pendulum can swing both in one direction and in the other.