GBP/USD Forecast: Last Brexit fight before a weekend deal? Buying the dip looks tempting
- GBP/USD has fallen off the highs as Brexit talks hit a fresh impasse.
- Efforts to achieve a deal depend on fisheries, a small sector.
- Friday's four-hour chart has shown that cable is out of the overbought territory.
"I cannot honestly say if there will be an agreement" – Michel Barnier, the EU's Chief Negotiator has returned to his regular pessimism in Friday's Brexit briefing. The French statesman has added that talks are in a "moment of truth" and there is a narrow path to a deal. UK Prime Minister Boris Johnson and other UK officials had already expressed pessimism on Thursday, kicking off the climb down from 1.36, and Barnier added fuel to the fire, sending it below
Barnier also reaffirmed that the main topic of contention is fisheries. The topic is highly sensitive and triggered elevated rhetoric from both the PM and European Commission President Ursula von der Leyen earlier this week.
The fish fight provides two reasons to be optimistic. First, it means the other thorny issues – governance and a Level-Playing Field – are mostly resolved and perhaps await a resolution on fisheries to cross the t's and dot the i's.
Secondly, the industry is small. With governments pouring enormous funds this year on everything related to the coronavirus crisis – and other topics to appease voters – they can also throw money at this problem. It seems too minuscule to prevent a much more lucrative deal involving other topics.
The latest clash is likely meant for local audiences. French President Emmanual Macron – now in isolation after testing positive for covid – will likely climb down alongside Johnson. France has been one of the more stubborn EU members on fisheries.
Overall, there are reasons to be optimistic that a deal may be struck over the weekend. The breakthrough on the LFP was achieved last Sunday in top-level talks – and this recent history may repeat itself
More GBP/USD Forecast: Three reasons to expect a sustained Santa rally for sterling
Outside the Brexit saga
US fiscal stimulus talks are down to the last details and both sides remain optimistic despite failing to meet expectations for an accord on Thursday. An FDA committee gave its nod to Moderna's vaccine, opening the door to a final authorization late on Friday.
On the other hand, a major hack into federal agencies – potentially by Russian actors – seems severe and is weighing on sentiment. Coronavirus continues raging in the US where deaths, hospitalizations and cases break records every day. In the UK, well over half the population is under Tier 3 restrictions.
Profit-taking ahead of the weekend and the Christmas holiday is also in play, weighing on sentiment.
Overall, every Brexit headline has the potential of moving cable by dozens of pips, while other events play second fiddle.
GBP/USD Technical Analysis
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Pound/dollar continues benefiting from upside momentum on the four-hour chart and the Relative Strength Index has fallen below 70 – leaving overbought conditions. All in all, bulls have fresh strength.
Resistance awaits at 1.3550, the daily high and a peak earlier this week. The new 2020 high of 1.3622 is critical resistance, and it is followed by 1.3730.
Support awaits at the daily low of 1.3490, followed by 1.3450, a stepping stone on the way up and by 1.34.
Author
Yohay Elam
FXStreet
Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.
