The British pound jumped sharply against the US dollar yesterday, after news came out that the UK is ready to resume negotiations with the EU regarding a post-Brexit trade agreement. Expectations that the parties could compromise at the very last moment have increased significantly, which has led to a sharp rise of demand for the British pound. Of course, many also expect the European Union to be ready to make concessions as well, but until such is done or intentions of it are expressed, the speculative growth of the pound will be limited.
The main problems that both parties need to resolve are the dispute over Ireland's borders and the issue on fishing. The UK wants to preserve sovereignty over a number of fishing zones, while the EU, on the other hand, wants to retain their rights to fish in these areas.
Chief negotiator for the UK, David Frost, said yesterday that he is ready to re-start negotiations with Michel Barnier, the chief negotiator for the EU. He hinted that the UK is ready to make some concessions, however, it has limits. Frost said that the principles for intensifying their dialogues have already been agreed, while noting that the UK wants to see the EU's desire to reach an agreement. The negotiations will resume next week in London.
Against this background, the pound practically reached the 32nd figure, emerging a rather strong upward potential. Everything depends now on the reaction of the EU and on their willingness to conclude a trade agreement. But since it is also not completely clear what concessions the UK is ready to make, over-optimism is very dangerous. In the event that the UK does not offer anything particularly new, reaching a consensus in the negotiations may slow down again, which will negatively affect the British pound.
So, in that regard, further growth in the GBP / USD pair will be initiated by the breakdown of the resistance level of 1.3150, because if the bulls manage to push the pair even higher, price will most likely reach above 1.3200. However, the quote will turn down if the pair drops below 1.3100, as such will lead to a strong downward move towards 1.3040 and 1.2970.
USD / CAD
The Canadian dollar lost its bullish momentum yesterday, after the publication of weak economic statistics. A report yesterday indicated that Canada's CPI declined in September this year, which is not a good sign for its economy. In addition, although the annual inflation rate accelerated in September, it is more due to weak price pressures last year, than due to a serious increase in the indicator this year.
Canada's CPI rose 0.5% if compared to the same period last year, but decreased by 0.1% if compared to the earlier month. Economists had expected the index to grow by 0.5%.
Such a scenario suggests that the Bank of Canada will most likely keep its interest rates unchanged for a long time, in order to sustain the country's economy.
Meanwhile, a good growth was observed in Canada's retail sales. However, given the fact that the data are published with a significant delay, the rise in the index did not have a serious impact on the market. Nonetheless, the report said that retail sales rose 0.4% from the previous month, amounting to C $ 53.19 million. The data for July was also revised to + 1.0%, while the previously reported growth was only 0.6%.
As for the USD/CAD pair, the downward move is limited by the support level of 1.3100, which the bulls have defended several times. Only its breakout will lead to a further decline towards the lows 1.3050 and 1.2990.
Meanwhile, a consolidation above the level of 1.3200 will lead to a price increase towards the highs 1.3260 and 1.3340.
