Pound retreats on Brexit impasse

The British pound has lost more ground in the Tuesday session. GBP/USD is currently trading at 1.3356, down 0.79% on the day.

Brexit takes sterling on a roller-coaster

It’s been a roller-coaster ride for the pound. GBP/USD gained 2.26% last week, as the pair rose on growing optimism that a Brexit deal was close at hand. However, the pound reversed directions on Friday, when it became clear that a deal still remained elusive. The sides are still talking, but the markets are no longer secure in their optimism that a deal will be reached by December 31st, when the UK says goodbye to the European Union for good. The pound is already down 1.20% this week, and if the current trend continues, we could see all of last week’s gains erased.

The European Parliament had set this past Sunday as a drop-dead deadline for the Brexit talks, saying otherwise it would not be able to ratify an agreement by December 31st. Like umpteen deadlines before it, this one came and went, and with it went some of the market optimism that a deal was imminent. The sides have said that almost all of the issues are resolved, but gaps over fishing rights, enforcement of the agreement and a level playing field remain and threaten to derail the talks and trigger a no-deal Brexit. It must indeed be infuriating for European negotiators when Prime Minister Johnson says that adopting World Trade Organisation rules in the event of a no-deal would be “more than satisfying”.

On the economic front, UK GDP for Q3 came in at 16.0%, revised upwards from 15.5%. This is certainly good news, as the economy has recouped most of the 19.2% decline in Q2. At the same, the economy remains below pre-pandemic levels, as the economy is 8.6% compared to GDP a year ago.

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GBP/USD Technical

• GBP/USD faces resistance at 1.3576, followed by resistance at 1.3692
• There is weak support at 1.3311. Below, there are support lines at 1.3268 and 1.3142
• The pair broke below the 20-day MA in the North American session. This is a sign of downturn for the pair

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