The pound/dollar pair is subject to the influence of many fundamental factors, however, like any other currency pair. But the specified pair has an important distinguishing feature, which is the undeniable priority of the Brexit issue. Any more or less significant news regarding the prospects of the negotiation process between London and Brussels can cross out all other fundamental factors, even the most significant. There are many similar examples when the pound/dollar pair showed an upward impulse, despite the general strengthening of the US currency and vice versa - often, GBP/USD pair even against the background of a weakening dollar. Figuratively speaking, when the Brexit factor "turns on", all other fundamental factors "turn off". In such a peculiar coordinate system, the pair has been trading for four years, that is, from the moment of the historical referendum on Britain's exit from the EU. And today, traders of GBP/USD are also forced to constantly be in a dangerous situation, in constant anticipation of news about the prospects for complex negotiations.
On the other hand, a certain benefit can be derived from the current situation, especially if we analyze the stages of the previous negotiations, when Britain and the EU were balancing on the verge of implementing the "hard" Brexit scenario. In general, the story repeats itself: Boris Johnson opposes prolongation of the transition period again (he opposed the extension of negotiations on the deal last year), Britain sets deadlines again and demonstrates inflexibility in the negotiations; Europe, in turn, makes it clear that a trade agreement is necessary primarily for the British, and secondly for the Europeans. Negotiators, as before, reproach each other for excessive ambitiousness and lack of "flexibility", while European leaders, the EU leadership and the British prime minister remain, so to speak, "above the fray", waiting for the right moment for face-to-face negotiations.
In other words, the current negotiation process does not differ too much from last year. Unless the coronavirus crisis has made its own adjustments, significantly raising the stakes. In the context of a record decline in the British economy and the decline of the Euro zone economy, the "hard" scenario of further relations will significantly worsen the situation, slowing down the recovery process after the coronavirus crisis. But in general, all stages of the negotiation process are largely repeated. Based on this, it can be assumed that the pound will be under background pressure in the near future, and short positions will be in priority for the GBP/USD pair. That is, for any growth of the pair, it is advisable to consider as a reason for opening shorts due to the weakening of the dollar.
Recent statements by representatives of the European negotiating group serve as an eloquent confirmation of the priority of short positions. As Michel Barnier said the other day, London is still backing down from its previous commitments and trying to gain a competitive advantage. At the same time, the EU's chief negotiator emphasized that Britain requires much more from the EU than Canada, Japan or many other partners.
Moreover, Barnier has been repeating this position for the past several weeks. His main message is that the UK continues to derogate from a political declaration that was agreed last year. In turn, the European Parliament emphasized in a separate line last week that the above-mentioned political declaration remains the framework for further dialogue. European deputies insist on the full implementation of the agreement on the UK exit from the EU, including all additional protocols to it.
Amid such hopelessness, the market had high hopes for a personal "connection" between Boris Johnson and the leadership of the European Union. In early June, the dialogue took place (though not in person, but in the form of a video conference), but its results disappointed the market. The European Commission chief, Ursula von der Leyen, commenting on the "mini-summit", said that the parties have not reached "the middle of the road" in the process of reaching agreements. She also noted that at the moment, no one can predict with certainty what stage the negotiations will be at at the end of this year. At the same time, both sides – both Britain and the EU admitted that they had used up all the opportunity to agree on key issues in the video conference mode, which is due to quarantine measures.
Obviously, the main events around Brexit's prospects will unfold in July. Most likely, Johnson's visit to Brussels or to a "neutral" European site will be held at the end of next month, where the issue of prolonging the transition period will be resolved. It is also clear that in the remaining weeks the parties will not be able to compromise on key issues, which means they will strengthen and tighten accusatory rhetoric against each other, thereby preparing the ground for negotiations at the highest level (that is, between the British Prime Minister, the EU leadership and leaders EU countries).
Such a fundamental background will put pressure on the British currency, so for the GBP/USD pair, short positions will be in priority in the medium-term. The main resistance level is 1.2550 (the middle line of the Bollinger Bands indicator, which coincides with the Tenkan-sen line on the daily chart). When this target is reached, shorts can be considered, since for the return (stable return) to the area of the 26th figure and above, support from Brexit is necessary, but judging by the latest statements from the parties, buyers of this currency pair will not receive this support in the near future.
