GBP/USD Breaks Bearish Barrier On Bout Of Bullish Brexit Buzz

We’ve been tracking the regular drumbeat of Brexit headlines and as we noted last week (see “GBP/USD Back Above 1.30 as Barnier says Brexit Deal “Realistic” in 6-8 Weeks” for more), the tone of the public comments has suggested that a deal is growing more and more likely as the talks enter crunch time.

Today, UK Finance Minister Philip Hammond added his voice to that chorus, stating that he was “confident” the country would be able to reach a deal this autumn and that a “no deal” outcome was unlikely, though not impossible. Furthermore, Hammond noted that a failure to reach a deal would put at risk substantial progress over the past 10 years; combined with BOE Governor Carney warning last week that British property values could fall by 20-30% in a no deal scenario, British politicians and citizens clearly have a heavy incentive to reach a deal of some sort.

In negotiating parlance, it appears that Britain has a very poor BATNA, or Best Alternative to a Negotiated Agreement, giving the EU relatively strong leverage. That said, both parties still prefer to see some sort of deal to minimize the interruption to international commerce. On that front, both sides are reportedly looking closely at creative solutions to the current deadlock over the Irish border, which is the primary sticking block to a deal.

Technically speaking, GBP/USD traders have pushed cable to its highest level since July on the apparent thaw in negotiations. The pair broke above its four-month bearish trend line last week, giving buyers optimism that a durable bottom may have formed. Looking ahead, bulls will have to navigate previous resistance levels roughly every 100 pips, with 1.3200, a bit above 1.3300, and a bit above 1.3400 all marking potential resistance zones.

Obviously, cable is far from “in the clear” from either a fundamental or a technical perspective, but the outlook is looking cheerier for the first time since the weather started warming in mid-April!