This week, the second stage of the negotiation process between London and Brussels should begin on the terms of Brexit. And although the dialogue will be long - until the end of November - the political situation in Britain is already testing the limit. The members of the government actually divided into two camps: supporters of the soft scenario of Brexit and their opponents, who are in favor of conditions for maximum independence from the EU.
Theresa May tries to maneuver among the backstage intrigues, building her line in the negotiations. The pound reacts accordingly: any hint of a soft scenario provides powerful support for the currency. Although pessimism on this issue breaks the upward trend as quickly and categorically.
If the second stage of negotiations on Brexit still begins this week (the final date has not yet been determined), then all the attention of traders will be again directed to this topic. Macroeconomic statistics, and even the prospects for monetary policy will go to the background. Moreover, this week in Britain will publish only profile PMI indices, which have an impact on the pair only with strong fluctuations.
Also worth noting is tomorrow's speech by the head of the Bank of England, Mark Carney at a meeting of the Committee on Economic Affairs of the House of Lords. If the head of the English regulator focuses his statement on the continuing rise in inflation (against the backdrop of a significant strengthening of the labor market), the pound will receive some support, but for a full-fledged growth in the British currency, positive news about Brexit is still necessary. But, alas, there are few reasons for optimism here, given the news background of recent days.
It should be noted that the pound against the dollar last week rose in price not only due to the weakness of the US currency.The British received support after members of the House of Representatives in the third reading supported the bill establishing the exact date of Brexit: March 29, 2019. The adoption of this law was regarded as a political victory of Theresa May, since now parliamentarians will not be able to endlessly send the draft of the deal for revision. Either a compromise, or a "hard" Brexit without a final deal. However, this fundamental factor did not last long: according to The Sunday Telegraph, Brussels is preparing to implement the worst scenario of the "divorce".
According to the sources of this newspaper, the staff of the European Commission from the beginning of this year concentrated on preparing for a hard Brexit, while allowing the option of no deal. As believe in Brussels, Theresa May simply can not agree to the demands of Europeans, given the situation in the British government. Supporters of Boris Johnson (the leader of the "hawks") increase pressure on the prime minister, accusing her of excessive compliance.
One of the deputies even said that May will make Britain a "vassal state" of Europe. After all, according to the preliminary conditions of Brussels, during the transition period, the British will have to live according to the laws of the EU and pay the corresponding payments - but they will not be able to influence anything (including the lawmaking process). Such a statement of the issue provokes rejection even among those British politicians who stand for the European integration position. On the other hand, it is obvious that Brussels has voiced a kind of an ultimatum, from which it will retreat in the process of seeking a compromise. The latest "conciliatory" comments by Donald Tusk and Jean-Claude Juncker show eloquently that Europe is ready to seek the best solution for everyone.
Prime Minister Theresa May will state her position in February, when she will voice the corresponding special speech. Until then, the market will traditionally live by speculations, based on insider information and comments of proxies. So far, this information background has turned into gloomy tones, after which the pound expected to weaken.
In general, the decline in the GBPUSD pair still has a character of correction. From a technical point of view, to resume the downward trend, the price should fall at least under 1.3840 (Kijun-sen line on the daily chart), after consolidating after 1.3795 (the middle line of the Bollinger Bands indicator on the same timeframe). Only in this case it will be possible to talk about a change in the medium-term trend: the pair will open its way to the 33rd figure. In the meantime, the price can not even pass the first level of support - 1.4045 (line Tenkan-sen on D1).
To implement the bearish scenario, a powerful negative message is needed regarding the prospects of Brexit. To date, only rumors are circulating on the market, which no one officially confirms. Moreover, tomorrow's speech of Mark Carney can suspend the downward movement of GBPUSD. The growth of British GDP, inflation, a decrease in unemployment and an increase in the number of employees - all these factors can tighten the rhetoric of the head of the Bank of England.
Thus, the pound/dollar pair is currently demonstrating a corrective recession, which may last up to the 38th figure. However, the growth of key macroeconomic indicators and the "unreliability" of negative fundamental factors regarding the prospects of Brexit suggest that the northern movement is likely to resume. In such conditions, one can consider the downward impulse of the pair as an excuse for opening long positions.
