The EU and the UK are running out of time to close a free trade agreement. Here are the key points and technical levels to consider in the coming days.
Cable Technical Analysis
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The coming days are decisive for the future
EU/UK relationship
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Negative outlook while below 1.2773
Deal or No Deal?
The time window to achieve a free EU/UK trade deal is
closing, as both sides have less than four weeks to negotiate. A deal with the
EU becomes more unlikely if the internal market bill cleared all stages in the
UK parliament, as the EU will become more skeptical about UK intentions.
However, it does not minimize the deal probabilities to 0%.
The UK economy is doing better than expected according to
Bank of England chief economist. That said, the economic recovery is likely to
lose steam due to increasing numbers of Coronavirus cases in the UK, Europe,
and the rest of the world.
On the other hand, the Bank of England may increase the
current quantitative easing and consider lowering the interest rates to
negative levels in case of a no-deal scenario.
GBP/USD Daily Price Chart (July 15 – September 21, 2020)
Last week, GBP/USD reversed higher eyeing a test of the high
end of the current 1.2773- 1.3048 trading zone. However, the price failed on
multiple occasions to overtake the 50-day moving average highlighting the lack
of a bullish impulse.
A daily close below the low end of the zone at 1,2773 may
encourage bears to press even lower towards the monthly support level at 1.2505
(Sep 2019 high).
On the flip side, a daily close above the high end of the
zone at 1.3048 may cause a rally towards the August 2020 high at 1.3484.
GBP/USD Four Hour Price Chart (September 1 – September
21, 2020)
On Wednesday, GBP/USD corrected its downtrend move and
traded above the bearish trendline resistance reflecting the bear’s hesitation
to lead the price.
To conclude, while the technical outlook remains neutral the
lack of bullish momentum discussed above on the daily chart signals a possible
bearish come back. Therefore, a break below 1.2707 may send the price towards
1.2574, while a break above 1.3071 could trigger a rally towards 1.3175. As
such, the support and resistance levels underlined on the chart should be kept
in focus.
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