Sterling (GBP) Outlook Mired by Brexit's Own Groundhog Day
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Brexit Outlook and Sterling (GBP/USD) Price, Analysis and Chart:
- EU/UK stalemate remains as the clock ticks.
- Coronavirus hampers talks.
The latest round of EU-UK trade talks has ended with exactly the same conclusion as the last few rounds, with both sides saying that they are keen and able to strike a deal if the other side shifts from their entrenched position. As neither side is willing to break their red lines - and keeps repeating that this is the case - then little can be expected from the talks and Sterling will remain rangebound until the clock finally runs down at the end of the year. The only way a deal can be agreed is if either UK PM Boris Johnson or European Commission President Ursula von der Leyen intervene and decide that enough is enough and give their negotiating teams the flexibility needed to pen a deal. This would require red lines to be broken and both sides may feel that a no deal is more palatable than a compromised agreement and the accompanying political storm.
This week’s talks were further hampered when one of the EU negotiating team tested positive for Covid-19 on Thursday, forcing chief negotiator Michel Barnier to self-isolate and delay talks further.
Sterling continues to price-in a more than 50/50 chance of a deal being agreed and therefore is vulnerable to a no-deal outcome. Against the US dollar, Sterling currently trades around 1.3250 and is vulnerable to a sharp fall back to the mid-to-high 1.20s if no deal is reached. Positioning in Sterling via the CoT report shows professional traders increasing their short positions to the highest level since August. This does leave Sterling vulnerable to a snap higher if a deal is agreed.
GBP/USD Daily Price Chart (December 2019 – November 20, 2020)
IG client sentiment data show35.80% of traders are net-long with the ratio of traders short to long at 1.79 to 1. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise.Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading bias.
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