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GBP/USD Weekly Forecast: Cautious Optimism Signals a Brexit Deal is Near

GBP/USD Weekly Forecast: Cautious Optimism Signals a Brexit Deal is Near

Justin McQueen, Analyst

GBP/USDFUNDAMENTAL HIGHLIGHTS: Neutral

  • Pound Turbulence on US Dollar Correction
  • Are the UK and EU Nearing an Agreement?

Pound Turbulence on US Dollar Correction

Another turbulent week for the Pound with the currency falling 1.6% against the greenback. That said, GBP has not been weak across the board as EUR/GBP traded in a narrow range, given that the apparent improvement in the mood music regarding Brexit negotiations prompted some stability in GBP. Renewed lockdown measures in the UK and a pullback in risk appetite, which appears more seasonal thus far (figure 1) has capped GBP/USD. However, looking ahead, attention will be placed on the upcoming round of negotiations before the de-facto October 15th deadline at the EU Summit.

Figure 1. Equities Following Seasonal Trend

S&P 500 Chart

Source: Refinitiv

Are the UK and EU Nearing an Agreement?

Unlike a few weeks ago, trade negotiations between the EU and UK are starting to show subtle signs of progress. UK press reports surrounding this week’s informal talks ahead of the ninth round of negotiations next week have provided a sense of cautious optimism that a no-deal will be avoided. Issues such as the EU giving the UK third country status look to have been resolved with The Times noting that the UK are confident that the EU will give it third-country status, thus allowing for agricultural goods to move freely between the Great Britain and Northern Ireland, this is particularly important given that it was among the main factors for the UK to press ahead with the Internal Market Bill (IMB). In turn, GBP/USD if off will likely remain choppy until a deal in principle is reached.

GBP/USD Price Chart: Daily Time Frame

GBPUSD Price Chart

Implied Weekly Range: 1.2540-1.2860

Support at 1.2690-1.2700 have curbed further losses for, failure to hold however, opens the doors to 1.2640-50 support. Bounce backs have been shallow suggesting that risks remain tilted to the downside, however, downside risks regarding renewed lockdown measures and Brexit uncertainty appear largely priced in now and thus a significant extension appears limited with the absence of a breakdown in Brexit talks.

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

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