Daily Market Recap - GBPUSD Lifted on Brexit Comments

The British Pound is gaining against the US dollar in mid-week trading after an announcement by EUs chief negotiator, Michel Barnier, prompted increased optimism over a deal being reached between the two economic blocs. The GBPUSD is soaring 1.69 percent at the time of writing.

Barnier was quoted saying that “an agreement is within reach if both sides are willing to work constructively”. He added that “we will seek the necessary compromises on both sides in order to reach an agreement and we will do so right up until the last day until its possible to do so”. Ending on a strong note “our doors will remain open until the very end”.

This announcement comes after a long pause in negotiations after British Prime Minister Johnson declared last week that the UK should prepare for a no-deal Brexit as European leaders refused to compromise on specific bottleneck issues. Traders took the news relatively lightly at the time as these kinds of comments have been made by Johnson in the past which most see as a posturing technique rather than a serious threat.

Consequently, the comments made by Barnier this morning appeared to hold much more weight as the GBPUSD reacted strongly to the idea that the EU remains willing to negotiate after last weeks decision by the UK to put talks on hold. Markets overwhelmingly welcomed the idea that a deal can still be reached, as a no-deal would place a lot of pressure on an already fragile UK economy.

From a technical perspective, the GBPUSD has rallied above the previous resistance zone of 1.30. The main trend in the pair is up, but the RSI is nearing overbought conditions which may trigger some degree of correction in the near term. The bullish target will be to close above the 1.131754 marks, opening the door for a test of the 1.33 handle in the coming sessions. On the flip side, the bearish scenario would be a pullback below the 1.31 mark, exposing the downside target of 1.30 before the end of the week.

(Chart Source: Tradingview 21.10.2020)

Looking ahead, with the difficulties present in the renewed lockdown measures across the UK and Europe, the GBPUSD will likely remain under pressure as would the rest of the continent. Upside potential remains should a Brexit deal be reached soon, however a failure to conclude an agreement before November remains a strong possibility, limiting upside on the GBPUSD.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.