Brexit Hits A Stumbling Block; GBP/USD Slips But Remains Underpinned


The Democratic Unionist Party (DUP) said this morning that it cannot agree to the latest Brexit proposals put forward by the EU and UK. The DUP said they remain concerned over VAT arrangement and ‘customs and consent issues’ and will not back the deal. Earlier, European Council President Donald Tusk said that a deal could ‘theoretically’ be agreed and put to the EU27 at the two-day EC Summit meeting starting today in Brussels. UK PM Boris Johnson will continue to push his case and negotiations with the DUP and the EU remain ongoing. If an agreement can be reached, UK PM Johnson will ask Parliament to vote on the bill on Saturday. This may prove difficult for PM Johnson as he does not command a majority in the House and various anti-Brexit groups will continue to vote against any agreement. The EU has already voiced fears that any deal they offer may not pass Parliament.

Sterling has come off its recent heady levels but remains underpinned as expectations of a no-deal Brexit fade further away. GBP/USD is currently around 1.2780, around 1 cent lower than Wednesday’s five-month high, but still over five cents higher over the last week. The daily chart shows GBP/USD to be heavily overbought, but the pair remains above all three moving averages and the 50% Fibonacci retracement level (1.26700) of the March 19 – September 3 sell-off. If a deal acceptable to all parties is found, GBP/USD is expected to rally further. The 61.8% Fibonacci retracement level at 1.2838 was broken yesterday - but not closed above – and is likely to be only a small barrier in the way of a run-up to 1.3177 and potentially higher.


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IG Client Sentiment shows that retail traders are 57% net-long GBP/USD, giving us a bearish contrarian bias. However daily and weekly changes give us a bullish bias.

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