Amid expectations of positive outcome of the talks on a post-Brexit trade deal, the pound sterling appreciated by over 2.5%. So, traders expressed bitter disappointment because the talks have been frozen again.
On Thursday night, UK Premier Boris Johnson and President of the European Commission Ursula von der Leyen had a video conference. Mr. Johnson dropped a hint that the talks are in the verge of failure unless the EU softens its stance on fisheries.
In turn, Ursula von der Leyen warned that there were still grave differences, especially when it comes to fisheries. Such disagreement is hard to overcome.
Fisheries make a minor impact on the UK economy, accounting for just 0.1% of its GDP. However, this issue is of great political importance. Johnson's government considers fisheries a symbol of the national sovereignty.
The Kingdom awaits a gesture from Brussels, but it is a too big concession for the EU. Despite such pessimistic rhetoric, EU officials expressed confidence that the trade deal could be finalized until next week. In the meantime, the sides are carrying on with the talks behind closed doors.
A new deadline is Sunday.
On the grounds of rumors, this weekend could become a milestone to solve the thorny issue. Indeed, the UK is running out of time. Otherwise, the European Parliament will not be able to ratify the agreement.
So, the Brexit resolution should be settled during Christmas holiday. In this context, a lot of banks and financial institutions have been informed unofficially that traders are allowed to return to the market as an emergency situation during Christmas holiday.
This is a sign that the market is set to trade under extreme volatility, thus suggesting nice trading opportunities.
Analyzing the chart of today, we can see that a local high of 2020 has been already broken by speculators. As a result, GBP/USD jumped to 1.3622. Traders are no more surprised either with the levels of 2018 or with a highly overbought market. The market has given in to speculators, neglecting technical factors and fundamental analysis.
Economic reports are of secondary importance nowadays. Now we see that traders took little notice of a policy meeting of the Bank of England which was held yesterday.
The Brexit talks are ruling the market. So, GBP/USD is highly sensitive to any new on the Brexit front.
The volatility index firmly hovers above 100 points amid robust speculative trade. There is little hope to see volatility ebbing away in the short term.
Looking at a weekly chart, let me remind you that a long-term trend is labeled as downward. However, bearing in mind crucial changes, which began in 2020, the medium-term uptrend has emerged.
Speaking about the economic calendar, the UK reported on retail sales for November. Retail sales tumbled 3.8% on month, though experts had projected a steeper drop to -4.2%. In annual terms, retail sales declined to 2.4% from 5.8% in November a year ago. The actual score is deeper than the forecast of 2.8%.
Following the publication, the pound sterling weakened a bit. Apparently, traders were also responding to the lack of progress towards a trade deal.
The next week is going to be short on the occasion of Christmas. On Thursday, the market is to close early. On Friday, all markets are shut because of Christmas festivities.
Importantly, even on Christmas Eve the market is expected to trade under higher volatility because the Brexit question has not been solved yet.
The following economic data is on investors' radarsL
Tuesday, December 22
UK – Q3 GDP
US – Q3 GDP
US - existing home sales (November)
Wednesday, December 23
US – durable goods orders (November)
US – new home sales (November)
Thursday, December 24
Germany – Christmas Eve (bank holiday)
UK – Christmas, early close at 12:30
US – Christmas, early close at 13:00
Friday, December 25
Looking at the daily chart, it is clear that at the formation of the daily candle during the Asia-Pacific session, GBP/USD retraced from 1.3623 which is a local high of 2020.
Uncertainty over trade negotiations and the Brexit outcome leaves traders suspense. The chief Brexit negotiator from the European Union Michel Barnier, speaking before the European Parliament, gave a harsh assessment of the ultimatum from the British Prime Minister.
"If the UK wants to car access to water for European fishermen anytime, then the EU must also retain its sovereign right to respond or retaliate by insisting on its conditions for food, and especially fish products, in the common market," Barnier said.
The market will continue to operate on the Brexit information noise, not paying attention to anything else. The negative market sentiment caused by the suspension of negotiations will affect the value of the British currency, but the main blow of speculators will fall on Monday. During the weekend, we will definitely receive a new batch of information on a trade deal and key issues, thus GBP/USD is likely to open the next week with a gap.
Our work with you will continue on the time-tested tactics, monitoring the information flow for negative and positive news on the Brexit trade negotiations.
Positive news on the Brexit front will strengthen the sterling. Negative news will knock GBP down.
You can find out all information on InstaForex website (the analytics section) as well as directly from news agencies like Bloomberg, Wall Street Journal, and Reuters.
Analyzing different timeframes, it is obvious that readings of technical indicators on a 1-hour and daily charts still reveal the downtrend neglecting a retracement and a buy signal. Minute timeframes signal selling opportunities.
Volatility for week/month/quarter/year
The volatility reasings for December 18
The volatility index is measured at 98 which is not a big value for such a dynamic currency pair. A higher index is expected on Monday.
Resistance zones: 1.3650**; 1.3850; 1.4000***; 1.4350**
Support zones: 1.3500*;1.3300**; 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-bound level