The pound against the dollar is currently trading in the wake of the USD, following the sentiment of the dollar bulls. The topic of Brexit has so far faded into the background, but it must not be overlooked categorically: as soon as the parties come to the key phase of the negotiation process, the behavior of the pound sterling will change dramatically. Unfortunately, not as much information comes from the fields of negotiations as we would like, nevertheless, it is still possible to draw certain conclusions regarding the prospects for a difficult dialogue.
First, it is worth recalling that the "probationary period" that Boris Johnson defined for the negotiating group already expired at the end of July. Even at the end of winter, he said that by the middle of summer it would become clear whether there would be any sense from further negotiations or whether the country needed to prepare for other relations with the European Union (that is, to prepare for trade relations under the WTO rules). It's already August 10, but the British prime minister is in no hurry with such conclusions and does not recall the negotiating delegation. Moreover, the chief negotiator from the UK, Michael Gove said on Friday that the parties have made "some progress" and have taken another step towards a trade deal. Gove '
The parties accused each other of unwillingness to find a compromise, demonstrated peremptory adherence to principles and even hostility to each other. But the situation gradually began to level out, and the negotiators just as gradually began to smooth things over. The wording has become softer and the positions more flexible.
As a result, information appeared on the market that Brussels might compromise in negotiations with London. According to Reuters, Europe may relax one of its key demands on Britain - the requirement to adhere to EU rules on state aid. According to unofficial information, Brussels is considering a dispute resolution mechanism that will allow London to fully control the cash injections and tax breaks for UK companies after a transition period at the end of this year. Thus, Britain will not have to adjust to EU requirements for a level playing field. It is worth noting that the provision of ensuring fair competition is the biggest stumbling block in the negotiations.
Also recently, information appeared on the market that Brussels is ready to concede on another difficult issue - fishing. Let me remind you that the differences here were insurmountable. London considers the demands of the European Union to provide access for European fishermen to the British fishing areas unacceptable, calling this incompatible with the future status of the UK as an independent coastal state. Brussels, in turn, insists on the opposite.
However, according to the British press, EU's chief negotiator, Michel Barnier is allegedly ready to back down here too. He proposed a model on the principle of "zonal attachment" - that is, the British shares of quotas will depend on the length of stay of fish populations in the UK waters. According to Brussels, this is also London's interest: with climate change, large volumes of fish will shift to the exclusive economic zone of Britain. In addition, according to journalists, Barnier backed down from the requirement to leave the EU ships the current level of access to UK waters. According to him, this policy was initially unbalanced, therefore it is subject to revision.
In other words, the parties are clearly determined to find a compromise on the most important and difficult issues. Therefore, the "deadline" set by Boris Johnson passed unnoticed - the negotiating group continued its work, and Johnson took a wait-and-see attitude. Moreover, at the end of last week, UK Treasury Secretary Rishi Sunak announced that a trade deal between the UK and the European Union could be concluded as early as September.
Thus, the situation with Brexit looks quite promising: at least the latest information signals are positive. The parties demonstrate negotiability, and Boris Johnson is no longer voicing aggressive theses against Brussels. Therefore, if we consider the long-term time period, then short positions on the GBP/USD pair cannot be called reliable. As soon as a more or less tangible date for the conclusion of a trade agreement appears on the horizon, the pound will go up, regardless of how the dollar is feeling. Judging by the statements of the representatives of Britain and the EU, this may happen relatively soon, in a few weeks.
Taking into account such a fundamental background, here we can consider a long game: on downturns in GBP/USD, enter purchases by investing in the pound sterling. But I repeat - we are talking about long-term positions since in the medium term and (even more so) in the short term, the pound will follow the dollar, which reacts quite sharply to political battles in the United States (especially after Trump signed four decrees on the provision of assistance to unemployed Americans). But in the long term, you can open long positions at the base of the 29th figure (the upper border of the Kumo cloud on the weekly chart) with an upward target at 1.3190 (the August price high, which was also tested (unsuccessfully) in March and February).
