The British currency continues to dive down amid the US dollar. The GBP / USD currency pair broke through an important support level of 1.3000, gaining a foothold in the 29th figure. The downward dynamics is due to both technical factors and fundamental arguments. Today, the pair has once again updated the annual minimum, approaching the price levels of August last year (area 1.2850-1.2940).
Just like a year ago, now the pound's fall is explained by the panic about Brexit. Let me remind you that in the summer of 2017, the Conservative Party led by Theresa May lost an independent majority in the parliament. Wishing to strengthen their positions, the prime minister reached the opposite effect, on the verge of resignation. On this wave, the currency pair GBP / USD dropped from 1.31 to the area of the 29th figure. In addition, at that time, Brussels and London discussed the "cost" of the divorce process. The parties discussed the issue roughly and scandalously for several months. The Europeans threatened to block access to the single market if the agreed amount was not paid, and the British, for their part, threatened to withdraw from the Alliance without any agreements. As a result, a compromise was found, and the pound quickly restored its positions, in September the currency pair GBP / USD was traded in the area of the 36th figure.
The current situation in many respects resembles last year's. Brussels voiced similar threats, London braves with "fearlessness" and willingness to leave the EU without concluding a deal. Now, the confidence in the "happy end" is much lower, given the growing hysteria about the tough Brexit. Looking ahead, it should be noted that if the negotiators still find a common denominator and traders will see "light at the end of the tunnel," then the currency pair GBP / USD will return the lost positions quickly enough. The growth of the oil market and the devaluation of the pound will have a positive effect on inflation dynamics, and this circumstance, in turn, will allow the Bank of England to accelerate rates of rate hike. But such an algorithm of action will only matter if the threat of hard Brexit passes. And this threat still hangs over the pound like a sword of Damocles.
It is noteworthy that not so long ago, the main negotiator from the European side Michel Barnier stated that the Brexit deal was ready for "two thirds". This rhetoric did not inspire the market, because the remaining unresolved issues are too complex to reach a compromise. First of all, we are talking about the border between the Republic of Ireland, a member of the EU, and part of Britain, Northern Ireland. London offered Brussels its own solution to the problem, according to which Britain would adhere to the customs rules of the European Union (and not just Northern Ireland) for two more years after seceding from the Alliance. However, the Europeans rejected this scenario. The question has hung in the air, although this problem is key for both sides. According to some sources, a "working version" of the compromise is being worked out now. According to this option, a common movement zone will be created, Britain, Ireland, the Isle of Man and the Channel Islands. Within this zone, citizens of Britain and Ireland will be able to "circulate" with the most minimal set of permits. Inspection at the border will also reduce to a minimum.
How viable this scenario is still unknown. But if the parties declare that they have reached a final compromise on the issue of the Irish border, then the probability of concluding a deal will increase significantly. While the lack of agreement on this issue can cross out all other compromises that have been achieved earlier.
Another stumbling block is the creation of a free trade zone. The British want to maintain access to a single market, but at the same time conclude trade deals with third countries. Brussels initially opposed this option, but now this proposal is also under discussion.
Thus, the negotiation process is on its own and in August will continue, already with the personal participation of Theresa May. Why is the pound so actively losing its position if the dialogue is still going on? The fact is that the situation is largely fueled by some politicians and officials, who increasingly began to talk about the high probability of "hard" Brexit. In particular, the Minister of Finance of Britain Liam Fox recently announced that he estimates the chances of a deal closing by only 40%, accusing the European Union of being "uncompromising." In the meantime, the British press increasingly publishes materials that "prepare" their readers for the exit of the country from the EU without a deal.
The overall picture really turns out to be extremely pessimistic. The export of the country will be taxed from 4% to 14%, after which London will have to introduce a return duty on European imports. In addition, the business will face numerous bureaucratic barriers (permits, certification, certificates of origin, etc.), and British financial institutions will lose the right to provide financial services in European countries. And this is not a complete list of the "apocalyptic scenario", which can become a reality on March 30 next year. Awareness of this fact against the background of disappointing comments by British and European politicians is putting enormous pressure on the pound. Especially after the last meeting of the Bank of England, where Mark Carney essentially stated that the further outlook for monetary policy depends on the prospects of Brexit.
Summarizing what has been said, it should be noted that in the next few weeks it will become clear whether the parties will be able to reach the final straight line of the negotiation process so that by October of this year a preliminary deal can be concluded or not. Hypothetically, the pound may return its positions quite quickly. For example, in October of last year, the currency pair GBP / USD traded in the area of the 30th figure, whereas in January 2018, it reached its peak in the middle of the 43rd figure. The repetition of such a scenario can not be ruled out, especially on the eve of key negotiations between London and Brussels.
But within the medium-term outlook, the probability of developing the southern movement of the currency pair GBP / USD remains. From a technical point of view, the pair on the week was fixed under the bearish signal "Line Parade" indicator Ichimoku Kinko Hyo (being under the lower boundary of the cloud Kumo and under the lines Tenkan-sen and Kijun-sen). Also, the confirmation of the downtrend is the placement of the price between the middle and bottom lines of the Bollinger Bands indicator, which demonstrates the extended channel, thereby strengthening the bearish trend. The next support level is the lower line of the Bollinger Bands indicator and the 1.2725 mark. This price target can be reached this week if the news background regarding Brexit's prospects will continue to be painted in gloomy colors.
