Brexit Latest: Deal Fails To Inspire GBP/JPY, GBP/USD Breakouts

BREXIT DEAL’S UNINTENDED CONSEQUENCES

It’s the first full trading day since the Brexit deal was announced and the British Pound is trading…lower. That seems like a surprise, insofar as instances of negotiations teetering proved to drag down Sterling. That there hasn’t been a more positive reaction in the GBP-crosses could be a result of the illiquid holiday trading conditions; on the other hand, there has been plenty of volatility in the US Dollar today following the fiscal stimulus and government shutdown news.

It may be time for traders to circle back to what seems like a niche issue: Scottish independence. Scottish First Minister Nicola Sturgeon has been adamant in her displeasure with the Brexit deal achieved by UK Prime Minister Boris Johnson, in part because of the timing around the coronavirus pandemic. And while it may be ironic that Scottish FM Sturgeon was pushing for an ‘-exit’ of her own during the pandemic, the fact remains that a second independence referendum is indeed a fly in the ointment for the British Pound.

To be clear, a second Scottish independence referendum in 2021 seems unlikely, unless the pandemic magically disappears overnight (it won’t). Instead, the mere prospect of a potential dissolution of the United Kingdom as an unintended consequence of a Brexit largely opposed to by Scotland (which favors staying in the EU over the UK by a near two-to-one margin, according to polls) may prove to be an albatross around the British Pound’s proverbial neck moving forward (in line with our Top Trade of the Year forecast, calling for GBP rates to finish 2021 close to where they started the year).

GBP/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (DECEMBER 2019 TO DECEMBER 2020) (CHART 1)

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A Brexit deal has arrived, but GBP/JPY rates have been uninspired to rally – even as global equity markets continue their run higher. The sideways trading that has marked December continues, even as the range resistance coincides with symmetrical triangle resistance from the August and early-December swing highs (dating back to the March coronavirus pandemic low). This resistance has been carved out near 140.01, the 76.4% Fibonacci retracement of the 2020 high/low range.

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