GBPCHF On A Rollercoaster On Brexit Negotiations But Keeps A Bullish Bias

Summary:

GBPCHF on a rollercoaster due to new Brexit developments. However, it trades with a bullish tone and a breakout above 1.20 is in cards.

All GBP pairs performed a U-turn today so far, but the GBPCHF trip was epic. It dropped from above 1.19 to 1.1770 on reports that the E.U. plans to send the U.K. formal notice for breaching the obligations assumed so far.

From a technical perspective, the move lower remains part of a possible bullish flag. Because it did not invalidate any levels, the bullish bias persists.

E.U. Sends the UK A Letter of Formal Notice

The GBP traded with a heavy tone right from today’s opening. No one knew why at the start of the trading day, but it was quickly announced that the E.U. prepares a communique that marks the beginning of the formal infringement process against the U.K. on breaching of the Brexit Withdrawal Agreement.

We sent today to the United Kingdom a letter of formal notice for breaching its obligations under the Withdrawal Agreement.

This marks the beginning of a formal infringement process against the United Kingdom.
Read more → https://t.co/c577FR0y5i pic.twitter.com/jtRlYk8VQR
— European Commission 🇪🇺 (@EU_Commission) October 1, 2020

The GBP pairs collapsed. All of them.

London Remains Optimistic About A Deal

However, an hour later, reports from London regarding the ongoing Brexit negotiations currency undergoing in Brussels showed an optimist tone. It appears that a landing zone on state aid has been agreed upon, and now only fishing remains as a sticky point.

Despite the EU launching legal proceedings against the UK over the internal market bill, officials in London are increasingly optimistic a Brexit deal.

“We’ve gone from about 30% chance of a deal to the other way around. I think it’s almost certain we’ll enter the tunnel.”
— Sebastian Payne (@SebastianEPayne) October 1, 2020

Therefore, the GBP pairs quickly rebounded to the original breakout point. Any break in the opposite direction, considering that the end of the trading week nears, might be decisive for this week’s trading.

GBPCHF Technical Picture

The pair trades with a bullish tone while inside the congestion area. For the past four or five months, the 1.20 level acted as pivotal, with sellers stepping in on any move above, and buyers coming on any move below.

However, it feels as the price action builds energy to break above the horizontal resistance provided by the 1.20 level. On such a breakout, more continuation follows.

Bulls want to wait for 1.2050-75 to come. Next, they should place a stop-loss order at 1.1850 and use a risk-reward ratio of 1:2 or even bigger. The measured move belonging to the bullish flag provides more than enough space for such a ratio.

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