Sterling is weighed lower on the day but buyers aren’t giving up just yet
As I’ve been mentioning before over the past few months, the Irish backstop remains the number one key detail in Brexit negotiations. No matter how optimistic the picture is painted by politicians (80%, 90% of any agreement being done), if that 10% of doubt contains the Irish backstop/border, then that 10% outweighs everything else.
Right now, that remains the key sticking point in negotiations as talks between EU chief Brexit negotiator Michel Barnier and UK Brexit secretary Dominic Raab broke down over the weekend. As a result, the pound is weighed lower to start the day and cable hovers just above the 1.3100 handle currently.
This comes after the pair touched a low of 1.3082 in early Asian trading and tested the 100-day MA (red line) @ 1.3098. That daily support will be a key level to watch out for into the close today as a break and hold below would highlight a more bearish bias in cable again.
At the same time, buyers are also putting up a defense at the 200-hour MA (blue line) preventing the near-term bias from turning more bearish. This will be a key level to watch out for in the session ahead as a break in both the near-term and daily chart would spell trouble for the pound ahead of Brexit talks in Brussels on Wednesday.
From latest developments, both sides are likely to keep mum ahead of discussions in Brussels and this week will mark a significant moment for pound sentiment for the month ahead. Optimists are looking for a deal to come to fruition in November but the discussions this week will be the stepping stone for that.
So, if negotiations continue to stall and there isn’t any significant progress from what we’re seeing now, expect the pound to continue to trade weaker into the month end. Again, it’s all about posturing at this point. There isn’t going to a massive breakthrough in talks to come just yet but the language in which we’ll be hearing from Brussels this week will be the most important factor for October trading for the pound.