If you want an idea of how thin markets are and how algo-led the reaction has been so far today, this is it:
Brutal spike up followed by a nosedive to the downside to erase all the earlier gains. The plunge coincided with a headline from the EU here that said fishing and Gibraltar issues are still unresolved ahead of this Sunday’s summit. That essentially means that not all EU27 member states will be able to agree to the text as Spain in particular is not likely to let that fly by.
As for solutions, the EU said that “they have ideas” on how to resolve the issue. Hardly convincing. However, as mentioned before, with lingering issues like the Irish backstop/border, I just don’t see how this is a massive change in sentiment. There are good parts to be had in the draft agreement here but in the things that matter, it’s very much the same.
Ignoring that spike to the downside, GBP/USD is now starting to move back lower as resistance from the 3 October low @ 1.2925 and the 61.8 retracement level @ 1.2913 as pointed out earlier played their role to a tee. Price now looks towards the 200-hour MA (blue line) @ 1.2860 and move below that, the near-term bullish bias will be eliminated.
As mentioned by one of our commenters here, there is no doubt that there is growing optimism that May will be able to pull through with this deal and possibly win over parliament. More so now after a leadership challenge appears to have dissipated. However, this is politics after all. You can’t rule out anything at the end of the day.
And until sentiment on the ground starts to witness a monumental shift to favour May, the pound’s gains are likely to be kept in-check as well.