The EU summit this week was supposed to be a turning point on the road to Brexit, because it was about reaching a preliminary agreement that important matters would be settled by November. However, the information from the weekend suggests that we are closer to breaks than conversations.
According to the press, the EU counted on drafting a divorce contract during the weekend negotiations, so that on Monday the leading officials from Brussels could get acquainted with the arrangements and prepare the relevant documents for the two-day summit starting on Wednesday. However, the draft agreement was considered unacceptable by the British side. The reason for the dispute is the shape of the border between Ireland and Northern Ireland. The details are about customs control conditions and other legal regulations in case the EU and the UK. Britain has not established a free trade agreement until the end of the transition period (at the end of 2020), the so-called backstop agreement.
According to the press, the agreement was reached at the "technical level", but opposition appeared at the level of politicians. Prime Minister May, her Conservative Party and the coalition DUP from Northern Ireland are pushing for the backstop to be unspecified - that the EU should not have the advantage of dragging future negotiations to maintain solutions that are beneficial to it. Now today's EU officials' meeting has been canceled and EU-UK talks are not scheduled until Wednesday.
Let's now take a look at the GBP/USD technical picture at the H4 time frame. The market has Opened with a gap down to the level of 1.3081, but after a few hours the gap was cloased as the market approached the technical resistance at the level of 1.3191. Nevertheless, due to the overbought trading conditions, the move up was capped around the level of 1.3180 and the price reversed towards the level of 1.3132. The momentum is now neutral as the market participants await the EU summit outcome.
