The British dollar is still in the zone of turbulence: the GBP/USD pair fluctuates within a wide price range, but cannot determine the vector of its movement. The price managed to visit the area of the 31st figure in December, and was marked at highs in the area of the 35th price level. The 400-point band, within which the pound flies, can become a kind of trap for inexperienced traders. Due to conflicting rumors about the prospects of Brexit, price movements are unpredictable, and standard and familiar fundamental factors simply do not work. In a period of such uncertainty, even the main macroeconomic reports should be treated in a special way: taking into account all the published figures, you should not rush to trade decisions. The market may react reflexively to the report, but then it will still return to the topic of Brexit. During such periods, it is quite easy to fall victim to a false price movement.
For example, key data on the UK labor market was released this morning. Many components entered the green zone, but the market reaction was negative: the pound dropped to the 32nd figure against the dollar. Although the unemployment rate in Britain came out at around 4.9% (with a forecast of growth to 5.1%), and wages showed the strongest growth since February this year (+ 2.7% including premiums, +2.8% excluding premiums). You might have thought that GBP/USD traders had noticed the only flaw in today's release - the number of applications for unemployment benefits jumped to 60,000. But no - just a few hours after the publication, the pound sharply rose throughout the market, even against the dollar.
All this suggests that standard fundamental factors have now lost their influence on GBP/USD, even when it comes to the release of data on the British labor market.
A similar situation may develop tomorrow, December 16. Let me remind you that important macroeconomic statistics will also be published on Wednesday - inflation. We will learn the meaning of the general consumer price index, core inflation, as well as the dynamics of the retail price index, producer purchase prices and producer selling prices.
Back then when the Brexit issue was not hanging over traders like an impending disaster, an inflationary report had an unconditional priority for the GBP/USD pair. But now markets are focused on the negotiations, at stake which is a trade deal between London and Brussels. The transition period ends on December 31, and if the parties do not find a compromise, then starting on January 1, the trade regime between Britain and the EU will be determined only by the rules of the World Trade Organization. This scenario is highly undesirable for the British currency, which is why GBP/USD traders react so sharply to the news flow associated with the negotiation process.
The news reports were quite contradictory. For example, according to Reuters, British Prime Minister Boris Johnson told his ministers that the most likely outcome of trade negotiations with the European Union would be "no deal". At the same time, according to Bloomberg, the likelihood of a deal "has grown significantly." This information was voiced to journalists not just by anyone, but by the Prime Minister of Ireland, Micheal Martin. Traders react to such news feeds accordingly, which is why the pound flies within a wide price range.
Trading in such conditions is very, very risky, as no one knows at what point the negotiators will announce their final verdict. Tentatively, the negotiations will last until the end of this week, although the parties may take additional time - in this case, the fate of the deal will be decided at the very last moment.
But any decision by the negotiators will cause strong volatility in the GBP/USD pair. If the dialogue fails again, the price will be in the area of 29-28 figures in the blink of an eye. If the parties still manage to find a compromise, then the pound will be in the region of 36-37 figures. The unlikely (but still probable) option to extend the transition period will also support the pound.
In which direction the pendulum will swing as a result is unknown, so it is now necessary to take a wait-and-see attitude on the GBP/USD pair.
