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
· The coming days are decisive for the future EU/UK relationship
· 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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