The fundamental background for the pound changes with kaleidoscopic speed. The news flow throws the Briton from side to side, keeping traders in constant tension. It is now almost impossible to predict the direction of the GBP/USD price: the pound's prospects depend solely on the position of the British MPs, in whose hands the fate of the deal.
One can imagine the pressure now being experienced by members of the House of Commons - and especially the representatives of the Democratic Union Party. In fact, the owners of the golden share in the Lower House of Parliament in the coming hours can put an end to the long-standing negotiating epic, offsetting the fears of Britain, Europe, and the whole financial world regarding the prospects for a "hard" Brexit. The fate of the agreement between London and Brussels now largely depends on the Unionists. Whether they succumb to political pressure or show integrity is an open question. That is why the British currency now reacts so sharply to newspaper headlines regarding the position of the DUP. All other fundamental factors do not have any significance for the GBP/USD pair.
As usual, in anticipation of key decisions, the market is flooded with numerous rumors, which sometimes contradict each other. The pound follows the news flow, although at the moment no one can say anything intelligible: political bidding is still ongoing. Nevertheless, with a high degree of probability it can be assumed that the negotiations reached the finish line, at its decisive stage. It will become clear in the coming hours: whether the parties could find a compromise or Brexit will again leave for the next round of negotiations.
In the morning, reports began to appear in the Irish media that the Unionists had agreed to the latest proposals of the negotiation group, and the issue of concluding a deal could be considered resolved. The pound reacted very carefully to this news, as it was not confirmed by any other information sources. This time, the market was not in vain and showed its caution: literally an hour later, the leader of the Youth League denied these rumors, adding that the parties are in search of a compromise that would suit both the Unionists and the Irish nationalists. Given the fact that foster did not leave the negotiation process, the pound has not lost its attractiveness: hopes for an agreement still remain.
Later, the head of the European Council Donald Tusk commented on the situation. And although he did not go into the details of the negotiations, he noted that after "eight to nine hours" (that is, until the end of Wednesday) it will be known whether an ordered Brexit will take place on October 31 or not. Such comments again inspired the GBP/USD bulls, and the pair quickly went up, updating multi-month price highs. However, the continuing uncertainty did not allow the bulls to approach the resistance level of 1.2900 (the upper line of the BB indicator on the weekly chart): the impulse died out when the target reached 1.2850.
It is likely that today this is not the last upward impulse. The many months of languishing tension regarding the prospects of Brexit is a central problem for traders of the GBP/USD pair (and indeed the British currency in general). Therefore, when the real hope for a happy end appears on the market, the "open spring" effect will work, after which the pair will again overcome several figures.
There is no consensus on the market at what level the GBP/USD pair will stop if the parties nevertheless sign the deal and the Parliament approves it at a Saturday meeting (October 18). According to some experts, the pair will rise to 32-33 figures in a few days, but then retreat to around 1.30, in anticipation of comments from representatives of the English regulator. According to other analysts, the 40th figure will be the price "ceiling". Let me remind you that the head of the Bank of England, Mark Carney, has repeatedly stated that the central bank's reaction to the decision on Brexit will not be "automatic." That is, the day after the implementation of the hard Brexit, the regulator will not reduce the rate - and, conversely, in the case of a "soft" scenario, the monetary policy parameters will not be tightened at the next meeting.
In my opinion, after the first emotions about the conclusion of the deal have settled down, the key macroeconomic statistics will again be in the spotlight. For example, today's data on the growth of British inflation turned out to be very contradictory: core inflation predictably grew (up to 1.7%), but the general consumer price index was in the red zone, not reaching the forecast values. The data on the British labor market published on the eve also left a double impression: the unemployment rate unexpectedly grew to 3.9%, while salaries continued to show positive dynamics. In other words, as soon as the Brexit issue is left behind, the focus of the market will shift to internal statistics, and this fact can serve as an anchor for the British currency.
However, it's too early to talk about this. Amid general uncertainty about the prospects of the negotiation process, only one thing can be said with confidence: if the parties nevertheless come to a compromise solution, the GBP/USD pair is guaranteed to overcome the 1.30 mark. In case of failure, by the end of the week the price will be in the area of annual lows.
The material has been provided by InstaForex Company - www.instaforex.com