Parliament Square in London. Image source: Alexey Fedorenko © 123RF.com
Boris Johnson decided to take the UK out of the Brexit negotiations table last week, fulfilling his previous promise to break off the talks unless the UK receives the concessions his cabinet demanded from Brussels.
Even still, the PM left a tiny door open for himself and the European Council to backtrack on the impasse, and strike some sort of a deal before the 31st of December deadline. Johnson alluded to the possibility of renewed talks provided that the EU agreed to make 'fundamental changes' to their 'approach'.
In reality, Johnson maintains his hard-line stance while continuously threatening to break off the talks once and for all, unless the EU agrees to lower their overall demands drastically.
It is evident, however, that both London and Brussels are reluctant to face the realities of a no-deal departure scenario, which would mean that businesses and entire industries would have to deal with the reality of tariffs. Hence, a last-minute deal could yet be clinched in the last possible moment.
Due to the fact that both sides seemingly stand more to lose from a no-deal divorce rather than from a "bad deal" outcome, either side could crack under pressure and choose the lesser of the two evils.
This is at least inferred using classic Game Theory, but would things pan out like that in the real world? It seems so unless there is some quite sudden and unexpected change in the underlying power dynamic by the end of the year.
It is precisely this hope for a mutually-satisfying final resolution to the impasse that continues to support the pound. As can be seen on the daily chart below, the price action of the GBPUSD continues to consolidate in a tight range, which was first recognised in our previous follow-up.
The price of the pair is trading just below the 23.6 per cent Fibonacci retracement level at 1.29932, which for the time being serves the role of a prominent resistance. Nevertheless, the price action also continues to find strong support from the 20-day MA (in red).
Any break in the Brexit deadlock could propel the pair past this Fibonacci resistance, and towards the next psychological barrier – the major resistance level at 1.34000.
GBPUSD 1D Price Chart. Image source: Trendsharks ©, created with TradingView.com
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