GBPUSD Consolidates Below 1.2700 On Conflicting Brexit Headlines

Summary:
• GBPUSD continues to trade in range-bound mode as conflicting Brexit headlines hit the newswires in the lead-up to the EU Summit on Thursday

The GBPUSD continues to trade below 1.2700 in consolidation as a flood of Brexit headlines continue to hit the newswires. Optimistic Brexit headlines from the British side of things allowed the GBPUSD to recover slightly in late New York trading yesterday. However, the cautiousness of the headlines from the EU side of the divide has capped further upside ticks above 1.2700. This has created an intraday consolidation as a flood of headlines and counter-headlines hit the wires.

The GBPUSD pair had hit an intraday spike of 1.26974, before retreating below the 1.2640 mark. It is trading within a 97-pip daily range of between 1.2601 and 1.2697.

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Conflicting Brexit Headlines Making GBPUSD Traders Cautious

Leader of the UK House of Commons Jacob Rees-Mogg is confident that there are now enough votes to pass a renewed version of the Brexit Withdrawal Agreement. Statement was supported initially by the EU Brexit negotiator Michel Barnier, who expressed optimism about a deal being reached as early as this week. Barnier’s initial optimistic sentiment was further echoed by his UK counterpart, who said within the hour that it was still possible to get a Brexit deal.

However, cautious sentiment set in when Barnier on Tuesday in an apparent volte-face, expressed dissatisfaction with the latest UK proposals. He also insisted that a legal text of the deal would have to be ready by today if he was to recommend the deal at the EU summit to commence on Thursday. The French European Affairs Minister Amélie de Montchalin also stated that the EU was seeking a Brexit deal, but not at any price.

Also, current EU President and Prime Minister of Finland Antti Rinne has suggested that an extension may be needed to reach a Brexit agreement. This view was also echoed by de Montchallin, who opined that a Brexit extension could be discussed if brought to the table.

Technical Outlook for GBPUSD

The EU Summit starts on Thursday and will run through Friday. There are three possible scenarios on the table.

1. UK to go ahead with a no-deal Brexit if an agreement on the problematic Irish backstop cannot be reached.
2. UK and the EU to make key concessions to resolve the Irish backstop issue and proceed to an agreement, which could be ratified by the EU and the UK Parliament. This would pave the way for an orderly Brexit.
3. UK PM Boris Johnson to request for an extension of Article 50. Already a Brexit Delay Bill is before the UK Parliament and this bill mandates UK PM Boris Johnson to ask for an extension by Saturday if an agreement is not reached by then. The EU is also considering an extraordinary summit if both sides get very close, to allow some more time for final negotiations.

As EU Chief Negotiator mentioned in his speech to the EU27 today, it all boiled down to these three scenarios: ” a deal tonight; an extension; or a breakdown.”

These scenarios will impact the GBPUSD in different ways. A deal or an extension could be interpreted as GBP-positive by the markets, which may extend the GBPUSD above the current 1.2706 resistance (October 11 high). This could target 1.2771 in the first instance; a site where price found support on August 20, 2017 as well as October 20 2018. Resistance was also found by weekly candles from May 12 to June 26 2019. Above this level, 1.2865 (38.2% Fibonacci level) and 1.3172 (April 21 high) may also become relevant if price push takes the GBPUSD above the initial resistance.

On the flip side, a no-deal Brexit scenario could get the GBPUSD testing support lows at 1.2368 (30 Dec 2018 and 14 July 2019 lows). Below this level, support can be found at multi-year lows of the last three years at 1.2022.