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British Pound Under Pressure as Brexit Talks Beleaguer UK & EU Officials

British Pound Under Pressure as Brexit Talks Beleaguer UK & EU Officials

2020-10-20 04:00:00
Dimitri Zabelin, Analyst
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2020 Election, Brexit, British Pound, US Presidential Debate, Coronavirus - Talking Points

  • British Pound volatility could swell as Brexit talks intensify
  • UK-EU divorce talks may push EUR/GBP out of downtrend
  • Third presidential debate up next: why does this one matter?
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Brexit: When Will it End?

The British Pound continues to be suspended in a fog of uncertainty as EU and UK policymakers attempt to hammer out the details of an agreement. As I’ve written before, fisheries are a major point of contention that have contributed to the impasse. EU chief negotiator Michel Barnier said bilateral talks will intensify this week so a deal can be reached.

Having said that, his UK counterpart David Frost agreed to hold constructive talks but noted in a tweet that “the EU still needs to make a fundamental change in approach to the talks”. Needless to say, prolonged uncertainty and growing premonitions about a no-deal scenario may pressure Sterling. This week, GBP has the second-highest implied volatility against the US Dollar among its G10 peers, right under the petroleum-linked Norwegian Krone.

Political Volatility Impacting British Pound

British Pound Under Pressure as Brexit Talks Beleaguer UK & EU Officials

Source: Bloomberg

Given the immense political volatility of the situation, it makes forecasting the British Pound’s movements against its counterparts even more difficult. Due to the erratic developments associated with Brexit – and Sterling’s price action tied to it – breaking news on the EU-UK divorce would likely elicit a strong reaction out of GBP, making it difficult to employ technical analysis. With that in mind, a pattern appears to have formed.

EUR/GBP Price Outlook

EUR/GBP has been trading below sharp descending resistance after topping in early September at a multi-month high at 0.9258. The pair may attempt to break out of the downtrend, which if successful could be met with an aggressive buying bout if it signals the start of a short-term recovery. Having said that, EUR/GBP may cap its gain at stubborn resistance at 0.9190.

EUR/GBP - Daily Chart

British Pound Under Pressure as Brexit Talks Beleaguer UK & EU Officials

EUR/GBP chart created using TradingView

Conversely, if the pair is rejected at the slope of depreciation, then the pair may challenge the floor at 0.8974. If that cracks under the weight of swelling selling pressure, it may open the door to retesting critical support at 0.8863. To get more technical updates, be sure to follow me on Twitter @ZabelinDimitri.

Third Presidential Debate and the Election

As mentioned in previous article, the third and final presidential debate – which in reality is the second after it was cancelled – will be occurring on October 22. You can read more about the details in my outline here. The main takeaway is to see how the debate affects polling data and in turn how it and if at all it elicits a market reaction.

While debates have historically not impacted voters’ intentions, the first presidential debate subsequently led to Democratic nominee Joe Biden rising in the polls while incumbent President Donald Trump fell.

This appeared to reinforce the narrative that the former Vice President will take the White House. Having said that, if the 2016 election taught us anything, it’s that the only thing you can be certain of is uncertainty.

--- Written by Dimitri Zabelin, Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or@ZabelinDimitrion Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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