The hope for a Brexit deal sent the GBPUSD 5% up in November. In December, the markets have doubts about the EU-UK trade deal. This is not the only trouble of the sterling. Let us discuss the prospect of the sterling and make up a GBPUSD trading plan.
Weekly GBPUSD fundamental forecast
The key issue in any divorce, like any trade deal, is money. How much is the EU willing to pay for European fishing companies’ access to the UK waters? Their annual revenues are € 650 billion, and Brussels’ offer of 18%, equivalent to € 120 billion, was dismissed as inappropriate. The UK wants 80%! The difference shows how far the parties are from reaching an agreement. After all, there are only a few days left until the new deadline date. The pound is beginning to suspect that something is wrong and, unlike most G10 currencies, is not rallying up against the US dollar.
Despite the disputes, investors believe the Brexit deal would be concluded at the last moment. The Bloomberg median forecasts prove this idea, suggesting a moderate GBPUSD rise to 1.35 if the Brexit deal is signed and a crash to 1.25 if London and Brussels fail to reach an agreement. Besides, the Times Radio message that the negotiations had entered the final tunnel stage pushed the pair up to a three-month high. However, the market has quickly regained consciousness and brought the sterling back below $1.34. Michel Barnier gathers EU representatives and informs them that trade differences have not yet been resolved. The pound risk reversals fell, suggesting high demand for hedging against the pound crash.
Dynamics of pound risks reversals
If the UK and the EU strike a deal, the European countries’ parliaments may not approve of it. Emmanuel Macron says France will not accept an agreement that does not respect its long-term interests. Paris, Amsterdam, and Copenhagen believe that the European Union is giving up too much land, succumbing to the UK’s demands. The situation looks threatening, and Brexit is not the only problem for the sterling.
Poor management of COVID-19 has both political and economic implications for Britain. Dissatisfaction with Boris Johnson’s actions is expressed by Scotland, which intends to hold a new referendum on maintaining membership in the United Kingdom. In 2014, 54% of respondents agreed to remain with thin the UKe; however, due to the pandemic and Brexit, the number of its supporters may seriously decrease. According to the OECD, the UK economy, along with Argentine, is the most affected among the world’s largest economies. By the end of 2021, UK GDP will be 6.4% less than in the fourth quarter of 2019.
Source: Financial Times
Weekly GBPUSD trading plan
Undoubtedly, It is a positive factor for the GBPUSD bulls that the UK was one of the first developed countries to approve the vaccine and soon begin the vaccination. In addition to the Brexit deal, it will allow the GBPUSD to continue the rally. Nonetheless, the political uncertainty around Scotland’s membership in the US will hinder the uptrend in the first quarter. The trading recommendation to buy the sterling on the drawdown after it fails to consolidate above $1.34 is working out. However, if the GBPUSD falls below 1.33, one should be prepared for a correction.