GBP/USD volatile ahead of crucial week for Brexit talks
Early GBP/USD gains are faltering, as sterling traders buckle up for a Brexit-fueled bout of volatility
Brexit deadline approaches as fresh negotiations start
Today has seen Michael Gove travel to Brussels in a bid to pre-empt the final scheduled round of Brexit negotiations that kicks off tomorrow. Traders have become accustomed to disappointment when it comes to UK-EU talks, and recent weeks have done little to shift that skeptical tone. Nevertheless, with just over three months until the UK leaves the block, we are finally reaching the business end of negotiations where we need to see some concessions made in a bid to avoid a messy exit.
Initial signs from the meeting between Gove and Sefcovic have done little to bolster confidence, with the European Commission Vice President stating that the UK position is some way from anything the EU could accept. Nevertheless, with a week of negotiations ahead, this week is likely to bring a significant degree of volatility and speculation for the pound. The hope is that we could see enough progress made by the end of the week to allow the two parties to enter a two-week ‘tunnel’ phase. That ‘tunnel’ would be a period of intense negotiations aimed at thrashing out a full deal ahead of the EU summit on 15-16 October. While Boris Johnson is looking towards the end of October as a deadline, it is clear that we need to see progress made this week if we are to stand a chance of hitting either of those targets.
GBP/USD: technical analysis
The pound has seen sharp gains as we kick off the new week, with GBP/USD hitting a fresh seven-day high. To some extend that highlights the raised hopes of a breakthrough in the coming days. However, the downtrend of the past month remains in play, with the current decline from 76.4% Fibonacci resistance highlighting that potential forthcoming weakness. Given that recent downtrend, there is a good chance we see further weakness from here, where a break through 1.3007 would be required to bring about a more bullish outlook. Until then, the current respect of the 76.4% Fibonacci level highlights the potential for weakness as the skepticism over forthcoming Brexit talks comes back into play.
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