GBP/USD: Overbought, So What? Boris’ Brexit Deal Looks Closer, Nothing Else Matters

Will the EU and the UK walk together down the aisle? Perhaps a marriage metaphor is not the best when discussing divorce, but it echoes words of a “path to an agreement” as European Commission President Ursula von der Leyen said. The top-ranking official added that there are still differences. A British official later responded by saying that both sides are still “very far apart” echoing Prime Minister Boris Johnson’s words on Sunday when agreeing to extend talks.

Yet it is probably Johnson who has allowed for a breakthrough – by ceding ground on the Level-Playing Field (LFP) and accepting some form of alignment mechanism to EU rules. According to reports, the PM hardened his stance on fisheries – a minuscule yet politically sensitive topic.

Sterling has been responding to every Brexit-related headline, including rumors of an imminent accord on Wednesday – which proved wrong. Nevertheless, the silence from the negotiators and especially the usually pessimistic Chief EU Negotiator Michel Barnier, speaks loud.

The recent rises imply that a breakup of talks would trigger a collapse in the pound, but how would it respond to a Brexit deal announcement? Some resistance in recent days implies that a deal is not fully priced in and there is more room to rise – not a “buy the rumor, sell the fact” response.

Outside Brexit News

Wednesday is a busy day for markets. Markit’s preliminary UK Purchasing Managers’ Indexes for December were mixed and inflation missed estimates with a yearly increase of 0.3%. In the US, PMIs are overshadowed by Retail Sales figures for November, which are set to reflect a virus-related slowdown.

The main event of the day is the Federal Reserve’s decision and speculation about the bond-buying scheme is rife. There is some chance markets would be unhappy with the Fed staying put. New forecasts are eyed.

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