The British pound marked its best 2-day rally since 2009 after Michel Barnier announced the EU's return to divorce negotiations with Britain, and the meeting between the prime ministers of Great Britain and Ireland was very constructive. Boris Johnson is trying to pull the country out of the European Union on the falling flag. He wants the deal to be approved by Brussels at the summit on October 17-18. In this situation, the head of the Cabinet will have time for ratification by the Parliament. However, sterling fans have another option in stock: the EU can organize an extraordinary summit in the second half of the month to prevent a disorderly Brexit after October 31.
The British prime minister must solve the seemingly impossible task: how to avoid the tight border between Ireland and Northern Ireland in the name of peace, and how to maintain the integrity of the single EU market for a deal with Brussels. At a meeting with his Irish counterpart, Johnson discussed how Northern Ireland should remain de facto in the customs area of the European Union and de jure beyond. Judging by the optimism of the official from Dublin, ways have been found. The dialogue was held behind closed doors, the details of the upcoming potential deal with Brussels were not disclosed, so the press dubbed the negotiations "tunnel".
Judging by the rapid pound rally, the market believes that a disorderly Brexit can be avoided. Deutsche Bank, an ardent "bear" in sterling, has crossed over into the "bulls" camp and recommends buying the currency of Great Britain with a target of $1.3. Goldman Sachs and Mizuho Bank gave the same recommendation, and Credit Agricole believes that the London-Brussels deal will push GBP/USD to 1.35. The derivatives market is almost certain: the ratio of premiums on call and put options to the British pound (reversal risks) has never climbed as high as it is now.
Pound reversal risk dynamics
Thus, the policy continues to rule the ball in the market of currencies and other assets of Great Britain. The week of October 18 may be decisive for sterling, while few people remember that the British economic calendar is very saturated. Releases of data on the labor market, inflation and retail sales in any other situation would simply have to attract the attention of investors to GBP/USD, because the decisions of the Bank of England on the rate, as a rule, depend on the dynamics of the main macroeconomic indicators. This time, Mark Carney and his colleagues will act depending on how the situation with Brexit develops, and only then they will remember the state of the economy of Great Britain. No matter how bad it looks now, the agreement between London and Brussels will change everything for the better. And vice versa.
Technically, after the clear implementation of the 5-0 pattern, when the rebound from the supports by 61.8% and 50% of the CD wave of the "Shark" model made it possible to form long positions on GBP/USD, the bulls managed to rewrite the September high and activate the AB = CD pattern . The probability of reaching its target by 161.8% is quite high. It corresponds to the mark of 1,275.
