The pound fell into depression again. The meeting between Boris Johnson and Ursula von der Leyen on Wednesday did not bring the expected result, although it cannot be called a complete failure. After all, it is worth recalling that on the eve of the visit of the British Prime Minister to Brussels, the parties were ready to completely stop the negotiation process. Therefore, Johnson's European voyage nevertheless brought certain results - the negotiators will return to the negotiating table and try to find a common denominator on the remaining issues.
The parties have also set a new deadline - the negotiators must complete the dialogue "with or without results" by the next Sunday, that is, by December 13. At the same time, there are exactly three weeks left until the end of the transition period, so the current round of negotiations can be called decisive. If a compromise is not found, the parties will either have to extend the transition period or agree to a hard scenario, without concluding a trade deal. In other words, the situation unfolds according to a familiar scenario, although the ending of this drama is still unknown. Just like last year, the key decision will be made at the last moment.
As you know, London and Brussels can't agree on three key issues: fisheries, competition rules, and dispute resolution mechanisms. All other aspects of the trade deal are settled. In particular, the parties were able to resolve the "Irish issue", which for a long time was also a stumbling block. London decided to exclude high-profile amendments from the text of the bill "On the internal market", violating the terms of the general agreement on Brexit. The negotiators were able to agree on the presence of EU representatives in Northern Ireland during the inspection and control by the British authorities of goods that will enter the Northern Ireland territory from the UK. In this way, the European side will be able to monitor the compliance of the British with the EU tariff regime for those goods that will transit through Northern Ireland to the Republic of Ireland in an open border. Recall that the issue of the Irish border was the most complex and scandalous since the adoption of the law "On the internal market" in its original form. But, as we can see, in the end, the negotiators were able to find an acceptable option for both sides.
The same cannot be said about the issue of fishing. Three-hour talks between the British Prime Minister and the head of the European Commission did not defuse the situation. Both Johnson and Leyen said they were unable to break the deadlock on strategically important issues. In turn, German Chancellor Angela Merkel, on the same day, said that her government is ready to recognize the failure of the negotiations if London continues to reject the proposals of the European Union. A similar statement was made by French leader Emmanuel Macron. The head of the British government, in turn, accused the Europeans of wanting to deprive Britain of control over the fish-rich waters. In other words, top politicians are tightening their rhetoric, demonstrating their uncompromising attitude. And in such difficult conditions, the members of the negotiating group are forced to look for compromise solutions that a priori involve certain mutual concessions. The already difficult rebus was complicated by loud statements from the leaders.
According to most experts, journalists, and politicians (both from the European and British sides), the current negotiations will again end in failure. As for future prospects, opinions differ. According to some analysts, the negotiation process will be automatically extended for another week. In this case, the reaction of the pound will depend on the tone of the accompanying statement. If the parties indicate progress, then the pound may soar to several figures. In the information vacuum, the pound will remain under pressure. According to other experts, as a result of the current negotiations, the parties will declare that they have exhausted all possible ways to reach a compromise. In this case, the pound will fall several figures down without any doubt. Politicians will have only two and a half weeks left (despite the fact that the Christmas holidays begin in Europe and Britain on December 24) during which the parties will either have to extend the transition period or announce preparations for the implementation of a tough scenario.
In the face of such uncertainty, it is quite difficult to trade the pound. Over the past few months, long positions have been a priority for the GBP/USD pair, as there was general confidence that the negotiation process will continue until the end of December. This confidence allowed the pound to "keep on the defensive" even against the background of pessimistic statements of the negotiators.
But now we are gradually getting closer to the X-hour, when the parties are forced to make a more difficult decision. At the moment, none of the experts can say with certainty what exactly the Brexit epic will end with. Given this disposition, longs now look risky. Short positions of GBP/USD can be considered within the day, catching upward pullbacks. For example, when the price returns to the borders of the 34th figure, open a short to 1.3300 or 1.3230 (the Kijun-sen line on the daily chart). Also, be sure not to forget about stops, because if the parties somehow manage to reach the stage of concluding a deal or Johnson talks about extending the transition period, the pair will shoot up several figures at once, sweeping away all resistance levels in its path. However, it seems that this scenario is extremely unlikely. The pair is likely to remain under significant pressure until at least Monday.
