The pound shows increased volatility today. The British pound significantly plummeted throughout the market in the afternoon, reacting to the next piece of news regarding Brexit prospects. At the same time, traders of the GBP/USD pair are somewhat ahead of events: the European Union has not yet officially announced its position regarding Johnson's latest proposals. Having felt a false start, the pair pushed off the support level of 1.2200 (the lower line of the Bollinger Bands indicator on the daily chart), but, nevertheless, continues to show bearish sentiment.
By and large, traders pre-win upcoming events that do not promise the pound anything good. At the weekend, French President Emmanuel Macron assured Johnson that Brussels would announce a consolidated position on the latest proposals of the British prime minister by the end of this week. Although the negotiation process has not yet been completed, alarming signals began to come to the market, indicating a looming failure. At the moment, the information is fragmentary - many news agencies or major publications broadcast the position of a member of the negotiating group, citing anonymous sources. But if you put this puzzle together into a single picture, you can come to the conclusion that the negotiations are really doomed to failure, despite some seemingly encouraging factors.
So, today a telephone conversation took place between Johnson and Angela Merkel, who over the past months have repeatedly hinted at a possible compromise with London. For example, in mid-August, the Chancellor surprised market participants with her peaceful rhetoric - she announced that Britain and the EU would definitely find an alternative to back-stop within 30 days, thereby solving the main Brexit problem. Merkel was unusually optimistic about further relations, whereas earlier, in similar negotiations with Theresa May, she took a much more rigid and uncompromising position. Such a dissonance then provided substantial support for the British currency.
But over time, it became clear that Merkel's optimism was premature: the backstop problem was not resolved in either 30 or 50 days. today, the German chancellor actually put an end to the negotiation process between London and Brussels. It is worth mentioning right away that this information is unofficial, since neither the German government nor Downing Street commented on today's dialogue between the leaders of the countries. But according to anonymous sources of German publications, Merkel responded to Johnson's proposals with an unquestioning condition: Brussels would make a deal with London only if Northern Ireland remained within the framework of the European Customs Union. All alternatives, including the "translucent border" scenario, will not even be considered at the EU summit.
According to the British press, after this conversation, Boris Johnson told his closest associates that negotiations with Brussels were unsuccessful, and the deal with the EU is "impossible in principle" because of the Europeans' position regarding the Irish border regime.
Thus, if the above information is officially confirmed in the near future, London will have only one option for the development of events: the country goes to early elections after prolonging the negotiation process until January 2020. Tthis is far from a positive scenario for the British currency. Indeed, judging by the results of recent opinion polls, conservatives continue to outstrip the Labor Party by 8-10%, despite all the previous scandals. In other words, early elections will not solve the problem as a whole, and on the contrary, they will only aggravate it. The current composition of the House of Commons is categorically against the hard Brexit, despite the fact that the deputies failed the draft deal three times during the period of Theresa May's premiership. What moods will dominate the next composition of the British Parliament is an open question. With the help of elections, Johnson can remove the last barrier that prevents him from playing the "big game": according to some experts, the prime minister deliberately leads the country to a hard Brexit, so that in the last days or even hours before the "X moment", Europe will still flinch and go to a compromise.
Given these prospects, it can be assumed that the British currency will be under strong pressure in the near future. Most likely, bears of the GBP/USD pair will still sell the support level of 1.2200 and will go to the lower boundary of the Kumo cloud, which corresponds to the level of 1.2120. However, this target is not the limit of the downward movement: if the parties finally "slam the doors," then the pound will again return to the area of multi-year lows, that is, to around 1.1980 (the lower line of the Bollinger Bands indicator is already on the weekly chart).
