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8 Jan 2020

GBP/USD consolidates and awaits trade negotiations

  • Iran/US tensions de-escalated which allows global trade deals to come back to the fore.
  • GBP/USD will be subject to Brexit headlines as trade negotiations start to get underway in 2020.

GBP/USD is consolidating around the 200-weekly moving average with a slight tendency to the downside as we head towards Brexit negotiations.

GBP/USD has been caught up in the crossfire of risk-on and off markets due to the missile attacks and crisis in the Persian Gulf. Today, however, President Donald Trump defused the tensions in an address which has enabled markets get back to basics. 

This means that global trade deals will now be front and centre and fully back on the agenda for politicians. Firstly, we will see the US and china hopefully sign a phase one trade deal. Assuming that goes ahead without delay, scheduled for the 15th of this month, market attention will be on Brexit gain. Assuming the European Parliament also gives the green light, the UK will formally leave the EU on 31 January with a withdrawal deal. Following its departure, the UK will enter a transition period until 31 December 2020.

Time is ticking

This is where the risks lie for GBP now. During this period, the UK's trading relationship with the EU will remain the same, but e will have plenty of news and headlines regarding the negotiate of a free trade deal and many aspects of the UK's future relationship with the EU.

There are sceptics who say that there is simply not enough time for a deal to be made before 2021, but if a trade deal is ready in time, the UK's new relationship with the EU can begin immediately after the transition. If not, then, at this stage, a hard Brexit will be the outcome which GBP trader fear the most – indeed, Mr Johnson has also ruled out any form of an extension to the transition period, meaning the clock is already ticking.

GBP/USD levels 

Valeria Bednarik, the Chief analyst at FXStreet explained that the In the 4-hour chart, "the pair is below its 20 and 100 SMA, while technical indicators stand below their midlines, with moderate downward strength. The next Fibonacci support comes at 1.3050, with bears probably pushing the pair further lower on a break below it."

 

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