GBP/USD: technical indicators moved to neutral on fade from Brexit optimism spike

GBP/USD has found a bottom between 1.2660 and 1.2770, lows that have been established in mid-August and recent trade as Britain gears up for leaving the EU next March where optimism for a smooth transition is Brexit is emerging in markets since a draft agreement on terms of Brexit has been agreed between the UK and EU.

Theresa May has hailed the draft agreement on post-Brexit relations as "right for the whole of the UK" and insisted a deal "is within our grasp". London and Brussels have already agreed on the draft terms of the UK's exit from the EU on 29 March 2019 in a five hundred and eighty-five-page divorce treaty. We now have the twenty-six page political declaration which sketches out the future relationship between the EU and Britain for decades to come - like a roadmap basically.  However, there is a lot to negotiate over the next few years, and it has not been signed off by the other 27 EU members yet, which may happen as soon as this Sunday at a special summit on Sunday. However, this has been "agreed in principle", the European Council says - (On the economy, the more the UK follows EU rules and regulation, the more natural trade will be. The withdrawal agreement is legally-binding - the political declaration is not. Some of the wording of it is non-committal and allows both sides to keep their options open).

What happens now? (an extract from an article in the BBC outlines the next steps as follows):

• Theresa May goes back to Brussels on Saturday for more talks with European Commission president Jean-Claude Juncker
• Negotiators try to get an agreement with Spain over Gibraltar
• EU leaders meet on Sunday to sign off on the withdrawal agreement and the political declaration
• If that is agreed Mrs May starts the process of getting MPs to back the deal - most are currently against it
• If MPs back the deal it then has to be ratified by the European Parliament
• The UK leaves the EU on 29 March - and trade talks on the future relationship start

UK PM May Spokesman: UK has no further demands in Brexit negotiations ahead of EU summit

Sterling has been in demand following the recent progress between the EU and UK on the basis of BoE rate expectations firming. However, speculative positioning in the pound is elevated currency which leaves the currency vulnerable to a relief rally on further optimism, although there is still plenty of potential for additional shorts being added which could lead to a deeper sell-off.  

GBP/USD levels

From a technical perspective, momentum indicators are flat now that the pound has faded a slight portion of its intraday gains. However, analysts at Commerzbank argued that immediate downside pressure would remain in play while the cross stays below the 55 day moving average and November 14 high at 1.3011/72. "Further resistance comes in at the 1.3175 current November high below which we will retain a bearish bias." On the downside, the analysts suggested that below 1.2662 would trigger further weakness to the 61.8% Fibonacci retracement of the 2016-2018 advance and the June 2017 low at 1.2593/89.