Brexit is done

After 4 years of back and forth between the UK and EU, Brexit negotiations have finally reached an end point where the EU and UK have agreed on a post-Brexit trade deal and everything seems to be heading towards a smooth transition. It only took 4 years!

Of course this has helped the GBP greatly appreciate against the USD. The instrument is currently testing the 1.3600 resistance level as we wait for the UK parliament to vote through the trade deal, which is expected to go through smoothly. Once this uncertainty is out of the way, the market will find it very inticiting to start trading this instrument again.

All the above is going to be favoring the Bulls as the hopes for a Brexit Trade Deal to be done with is giving many investors the needed stimulus to buy the Cable. However, virus woes over in the UK are keeping most buyers cautious of the future of the economy which has already been crippled.

Back to the main point Brexit. Earlier in the day, during the Asian session to be precisie, Reuters was out with some excerpts of UK 's PM Boris Johnson’s speech. The leader of the country highlighted the nation’s trade freedom, however, he downplayed the service section that didn’t gain any major positives from the Brexit deal.

As mentioned, UK policymakers are set to vote on the key deal today as they will be debating the deal from 9:00 AM until 11:00 PM when they will unveil the final decision on whether to pass through the deal or not. Now the opposition has already shown support for the deal and hence proved positive for the GBP as we’ve seen it climb higher in the past few days.

As part of his speech, PM Johnson also highlighted that his government will be extending Tier 4 restrictions to some more areas in Britain saying the following “Ministers were considering imposing the toughest measures on parts of southwest England and Cumbria, where the variant appears to be gaining ground even though cases remain relatively low, said the report. The Telegraph reported on Monday that Midlands and the North region in England are expected to be put into Tier 4. Health Minister Matt Hancock will give an update on regional coronavirus restrictions on Wednesday.”

Technically Speaking

The instrument is currently challenging the $1.3600 resistance level which it tried to break above on December 24th. The combination of good news from Brexit and the stimulus package out of the U.S. which is weakening the USD is giving the GBP enough bullish momentum to at least challenge that resistance.

The Bollinger Bands seem to be widening on the instrument, indicating that there is going to be an increase in volatility on the pair and hence there could be a sudden increase or decrease (depending on the fundamental situation), so best be wary. However, with everything that is going on, the probability of a move higher is much higher.

Moreover, the RSI (Relative Strength Index) is showing some space for a move higher as it prints near the 60-level indicating that the market has still not reached the overbought conditions. One might argue that there is some divergence between the indicator and the price action, but since there’s already been a correction, there doesn’t seem to be any inclination towards a correction in the RSI or price action.

Looking forward, GBPUSD traders, especially the buyers, are waiting to hear that there is a smooth passage of the Brexit deal. They would also love to hear that the U.S aid payment is going through as a weak USD translates into a strong GBP. For sellers, any further worsening of the virus conditions in America and Britain can make the move higher much harder to achieve, and that’s when the sellers are going to jump in.