FX.co ★ Brexit: In anticipation of a breakthrough

The pound started the trading week quite volatile: at the beginning of the day there was downward movement due to the strengthening of the dollar, followed by growth due to strong macro statistics shown by the PMI and subsequent significant strengthening against the background of news on Brexit. Such a nervous situation will continue for several days (at least until tomorrow), so we should prepare for strong fluctuations in the price of GBPUSD.

Today, the seventh round of talks between London and Brussels started. On many indirect grounds, this meeting will be qualitatively different from the previous ones. First, at the moment there is a preliminary agreement on the amount of compensation payments.

Previously, the parties stubbornly stood on their "own" figures: Brussels demanded 60 billion pounds, London was ready to give 20 billion pounds. Now they agreed on 40-55 billion pounds, although this amount will still be clarified today and at the EU summit. But in any case, there is positive progress in this matter. Secondly, now there are certain hopes for solving the "Irish" problem. This is the border between the EU member Ireland and Northern Ireland, which is part of the United Kingdom. It is worth noting that this item will now come to the forefront of the negotiation process, if the financial side can be resolved.

It should be noted that Ireland requires Britain to maintain "transparent" border control, given the deep economic and social ties between Dublin and Belfast. Ireland does not even allow the option of building a border infrastructure: otherwise the Irish authorities threaten to veto the final deal.

However, in this issue there are also some progress. Last weekend, the head of the Ministry of Foreign Affairs of Ireland Simon Coveney said that he does not intend to be a "stumbling block" in the negotiations between London and Brussels. At the same time, he warned that his country was waiting for clear and precise proposals from Britain.

It seems that such proposals will be voiced by Teresa May. According to the British edition of The Daily Telegraph, London and Dublin have already agreed on the regime of optimal border control. In turn, the journalists of the Financial Times clarified that a preliminary agreement on this issue is already with Brussels. May agreed not to tighten the border (and, apparently, customs) control, thus fulfilling the demands of the Irish.

It should be noted that all incoming information at the moment has the nature of unconfirmed rumors. Such inside information accompanied the negotiation process during all 6 months. Now the situation is somewhat different: the sources of various influential British and European publications say that the parties really made a breakthrough in the search for compromise solutions.

Of course, this year, only the first part of the big deal will be completed. Looking forward, there is a list of no less complex and abundant problems. In particular, the parties will discuss the list of rights of EU citizens in the UK, the role of European courts in the legal field of Britain and so on. But despite the huge list to implement the rule of law, the search for a compromise here is only a matter of time.

Thus, the market is now reasonably in high spirits, waiting for the first official confirmation of optimistic rumors. This will happen today and tomorrow: the parties must announce the results of preliminary negotiations. But the pound is growing already today, as the seventh round of negotiations is the "dress rehearsal" before the EU summit (December 14-15).

It is also necessary to note a very positive macroeconomic statistics for the pound. On Friday, the PMI index in the manufacturing sector confirmed the dynamics of growth, jumping immediately by two points (to 58.2 points). And today the PMI index in the construction sector, which came out at the level of 53.1 - the best result since June this year.

Thus, the fundamental background is the best way: optimistic Brexit news echoes with positive data. And although this situation is "hanging by a thread" (because the risk of a contradiction between London and Brussels remains), the British currency looks attractive, including when it is paired with the dollar.

The same goes for technical analysis. On the daily chart, the pair continues to trade in an uptrend, which is confirmed by the trend indicators Bollinger Bands and Ichimoku Kinko Hyo. The pound-dollar is testing the top line of the Bollinger Bands indicator, which is in the expansion phase of its lines. This indicates the readiness of the pair to move, and, probably, the movement will be bullish, since the upper line of the indicator is being tested. Bollinger Bands signals are confirmed by signals from the Ichimoku Kinko Hyo indicator, which shows that the pair is above the Kumo cloud and above all the lines of the indicator, which formed one of its strongest "Parade Line" signals. The nearest upward target is 1.3620 - this is the upper line of the Bollinger Bands indicator on the weekly chart. But the support level is the price of 1.3380 - this is the Tenkan-sen line on D1.