European Commission Building. Image source: Xavier Lejeune © 123RF.com
Boris Johnson will head to Brussels in the next following days for an emergency meeting with the President of the European Commission Ursula von der Leyen. The two leaders will attempt to clinch a mutually satisfying agreement after the latest deadlock in negotiations that was hit over the weekend.
The two sides have until the 31st of December to come to terms with each other if they want to have secured a trade deal beforehand. The PM, who has been the main architect of Brexit since 2016, has been adamant about getting Britain out of the EU by that deadline at all costs, so postponing the talks past the 31st seems highly improbable.
Experts familiar with the matter expect that most of the peculiarities of the broader deal have already been ironed out, with three crucial contention points still remaining. According to Bloomberg, those include fishing rights for European fishing fleets within British coastal waters; fair competition opportunities for European businesses; and matters of governance, such as whether and to what extent state aid would be acceptable.
It is about to be seen whether either of the two sides backs down on those stumbling blocks in favour of striking a compromising deal. Meanwhile, the markets are focused solely on whether or not the negotiations end up in agreement.
This means that the initial market reaction to any deal, regardless of whether it pans out to be a good one or a bad one, is likely to be one of optimism. Only after this initial volatility outburst is settled down can the long process of pricing in the more intricate outcomes from such a deal commence.
In contrast, if this week's talks in Brussels between the PM and Ursula von der Leyen hit another roadblock, this is likely to prompt another sell-off of the pound. That is so because the Brexit negotiations have had an extremely polarising impact on the value of the GBPUSD.
As can be seen on the 4H chart below, the pair has recently broken down below the major resistance level at 1.3400, following the aforementioned negotiations roadblock that was reached over the weekend.
The underlying price action is currently being consolidated in a tight range between the 50-day MA (in green) and the 100-day MA (in blue). This is happening as the overall trading volume diminishes in anticipation of the forthcoming meeting in Brussels.
The subdued price action is likely to persist until more information regarding the outcome of the negotiations becomes available.
GBPUSD 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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