03.07.202008:05 Форекс анализи и прегледи: GBP/USD. Stumbling block: talks between London and Brussels ended in failure

The pound-dollar pair has been trading within the 24th figure for the third consecutive day. The pair's corrective growth is mainly due to the weakening of the US currency – the pound is still under pressure from many fundamental factors, which were aggravated by the brexit issue yesterday. Therefore, the upward dynamics of GBP/USD should be regarded as a temporary phenomenon, that is, as a reason to open short positions at a more favorable price.

The market is expected to be slightly volatile today: US trading platforms are closed due to the Independence Day holiday, while the economic calendar is almost empty on Friday. Therefore, the market is likely to digest previous events, which are mostly not in favor of the pound.

Exchange Rates 03.07.2020 analysis

First of all, we are talking about the negotiation process between London and Brussels. The first face-to-face meeting between negotiators since the pandemic started was held this week, but this turned out to be a total disaster: the parties decided to complete it ahead of schedule by canceling the planned early Friday meeting. The previous four days showed that the positions of Britain and the EU are still at different poles, while neither side intends to make concessions on key issues.

Disagreements regarding the catch of fish remain the most difficult. Britain considers it unacceptable that the EU demands that they ensure access for European fishermen to British fishing areas. According to London, such requirements are incompatible with the future status of the UK as an independent coastal state. The British want to annually review the issue of "admission" of European fishermen, but this proposal was categorically opposed by France (the French are generally the most ardent opponents of the British on the issue of Brexit). Also, the parties cannot agree on common competition rules for business. As it turned out, both sides interpret this term differently. According to the European Union, London's proposals put British businesses in a privileged position relative to the companies of the other members of the EU.

Another stumbling block is compliance with the rules and standards of the EU. It is worth noting here that London is currently holding parallel negotiations with Washington on a trade deal. Discussion of the future agreement began after US President Donald Trump's meeting with British Prime Minister Boris Johnson. Downing Street understands that the Americans can demand that Britain comply with its standards, so it is now important for the British to preserve the possibility of freedom in this matter, without burdening themselves with obligations to the EU.

The above points are the main, but not the only problematic issues for which we have not been able to find a common denominator. Commenting on the latest developments, the chief negotiator from the UK, David Frost, said the following: "...the negotiations were comprehensive and useful. But they also highlighted the significant differences that still remain between us on a number of important issues." In my opinion, this wording most clearly reflects the current state of affairs. The parties are ready to discuss key issues, but are not ready to make mutual concessions. Pessimistic comments were voiced yesterday by the head of the European Commission, Ursula von der Leyen. According to her, the EU will not agree to conclude a Brexit deal at any cost, while the positions of London and Brussels "still differ significantly".

Exchange Rates 03.07.2020 analysis

The talks that were interrupted yesterday are due to resume next week – but they are unlikely to change the situation dramatically. According to rumors, in mid-or late July (that is, before or after the EU summit), Johnson will visit Brussels for face-to-face and personal talks with EU leaders and the EU leadership. In my opinion, in the current circumstances, only this step will be able to move the situation from the dead point. But, given the experience of last year's Brexit negotiations, we can assume that the British prime minister will escalate the situation on the eve of his visit – for example, by promoting the topic of the "Australian scenario". Australia in its trade relations with the EU and mostly follows the rules of the World Trade Organization, although there are separate agreements (for certain types of goods). According to Johnson, Britain can follow this relationship algorithm. The market reacted negatively to this initiative, as in fact it is about implementing a "hard scenario".

This fundamental background will put pressure on the British currency, therefore, short positions will be a priority for the GBP/USD pair in the medium term. From a technical point of view, longs are also a big question: on the daily chart, the pair is between the middle and lower lines of the Bollinger Bands indicator, as well as between the lines of Tenkan-sen and Kijun-sen, but above the Kumo cloud. The immediate goal of the downward movement is the 1.2400 mark - this is the Tenkan-sen line. The next support level is the upper border of the Kumo cloud - 1.2340 mark.

*Анализът на пазара публикуван тук има за цел да повиши информираността Ви, но не и да дава указания за търговия.

Irina Manzenko,
Аналитичен експерт
InstaForex Group © 2007-2021
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