GBPUSD Trades Above 1.31 as U.K.'s Chief Brexit Negotiator Sees UK-EU Agreement Possible

Summary:

GBPUSD pushes higher on news about a EU-UK agreement. If there is a time for a push through significant levels, summer is such a time.

The GBPUSD and other GBP pairs caught a bullish tone on Brexit negotiations’ optimism. The pair trades above 1.31 after finding support at the round 1.30 level and looks poised to continue higher.

The market was taken by surprise as the U.K.’s chief Brexit negotiator hinted at a possible agreement way ahead of the December deadline. More precisely, September is viewed as a possibility for an agreement between the E.U. and the U.K. based on the framework of the FTA (Free Trade Agreement) that the European Union signed with Canada.

Not only the GBPUSD pair jumped on the news, but other crosses too. For example, the GBPCHF popped back above 1.19, and likely heads towards 1.20, an area it struggles to break for quite some time now. The EURGBP remains bid, but that’s likely to change if the GBP bid continues.

GBPUSD Technical Picture

The 1.30 level is key for the GBPUSD pair. So far, it acted as a support for a horizontal correction – one that resembles a triangular pattern.

Those using classic technical analysis patterns may also argue for a bullish flag in the area, and be right. What matters here is the ability of GBPUSD to remain above the 1.30 (horizontal support) and above dynamic support given by a triangle that broke in the past.

But the danger that this is nothing but a longer-term summer consolidation remains. As such, to trade a possible market preparation for a Brexit deal, the ideal setup requires buying more strength. Therefore, the idea is to wait for a new marginal high before going long with a stop loss at the 1.30 level. Finally, by using a risk-reward ratio of 1:3, traders can deduct the logical place for the take-profit level.

Is the 1:3 too much for a risk-reward ratio? Usually, it is, but at this point, this looks like a market coiling to break higher after a consolidation at support. Hence, more follow-through than usual is expected.