GBP/USD Forecast As Brexit Game Theory Continues

Summary:

The GBP/USD gapped-up earlier today as the UK and EU extended Brexit talks. This is likely game theory. So, what next for the British pound?

The GBP/USD is paring back earlier gains as traders start to question the possibility of a deal between the UK and the EU. It is trading at 1.3315, which is slightly below the intraday high of 1.3365.

What happened: Last week, Boris Johnson and Ursula von der Leyen had a dinner meeting in Brussels where they set yesterday as the deadline for Brexit talks. Well, by yesterday, the two sides had not reached a deal but the two leaders asked the teams to continue the talks. This reassurance pushed the GBP/USD to today’s high of 1.3365. The pair has now lost momentum as traders question whether the two sides will reach a deal.

Why it matters: Time is running out since the UK has about two weeks to reach a Brexit deal. If there’s no deal by December 31^st, the two sides will start putting tariffs on each other. Visitors will also require visas to travel. In total, this could lead to a 2% decline of UK’s economy, more than 300,000 job losses, and potential negative rates. Some analysts believe that the GBP/USD would slide by more than 20% without a deal.

GBP/USD forecast

What next for GBP/USD? On the two-hour chart, we see that the GBP/USD pair gapped-up to a high of 1.3365 today. It is now probing the lower side of this gap even as the Average True Range (ATR) continues to rise. This is a sign that the pair is getting more volatile. Therefore, for the rest of the day, the pair may continue falling as bears target the next support at 1.3250.