- The Johnson-Varadkar meeting tops the agenda today.
- GBP/USD has bounced off the lows amid hopes for a US-Sino trade deal.
- Thursday’s four-hour chart is pointing to further falls for the currency pair.
Can the EU and the UK strike a deal against all odds? That is the question investors are asking as UK Prime Minister Boris Johnson meets Irish Taoiseach Leo Varadkar. Their encounter, at an unknown location, is a last-minute effort to find a Brexit deal in what is described as a make-or-break moment for the talks.
And it seems that things are already broken. Varadkar said that the UK’s insistence that Northern Ireland must leave the EU’s customs union regardless of what the province’s people want is “of grave difficulty for us.” Chief EU Negotiator Michel Barnier said, “We’re not really in a position where we’re able to find an agreement,” when addressing the European Parliament on Wednesday.
In London, the government’s position remains that the UK must leave on October 31, three weeks from today. Andrea Leadsom, the Secretary of State for Business, Energy and Industrial Strategy, suggested that it would be perfectly reasonable for the PM to obey the Benn Act and ask for an extension to Brexit while sending another letter asking the EU to reject it. The opposition fears that her words may turn into policy.
Parliament is currently suspended until the Queen’s Speech on Monday, and both parties are gearing up for an emergency debate on Saturday, October 19. Johnson asked for the special sitting, right after the crucial EU Summit on October 17-18, where he may present a deal. It will also enable MPs to press him to ask the EU to delay Brexit. The day is the deadline for requesting such an extension.
In the meantime, GBP/USD is rising due to the US dollar’s broad weakness as hopes for a US-China trade deal have pushed the safe-haven greenback lower. The world’s largest economies may agree to control the Chinese yuan’s movements and refrain from new tariffs. Closely-watched high-level talks are due today.
US inflation data is also of interest. Core Consumer Price Index just came in as unchanged, the weakest reading since January.
The Federal Reserve’s meeting minutes revealed that concerns about low inflation had pushed policymakers toward cutting rates. On the other hand, some members wanted to communicate when the Fed will stop reducing rates. The bank is expected to announce another rate cut later this month, but the split within its ranks continues raging.
UK data has somewhat disappointed. Gross Domestic Product dropped by 0.1% in August, worse than expected. However, it came on top of an upward revision to July’s growth rate to 0.4% from the 0.3% initially reported. Mark Carney, Governor of the Bank of England, has said that recent data is consistent with the broader picture of soft growth.
Overall, headlines from the British-Irish summit and trade talks are set to dominate GBP/USD trading, with short-lived influence from US CPI figures.
GBP/USD Technical Analysis
The technical picture remains bearish despite the recent rise. Momentum on the four-hour chart remains to the downside, and the currency pair remains depressed below the 50, 100, and 200 Simple Moving Averages.
Initial support awaits at 1.2235, which supported GBP/USD in early September. The 1.22 level provided support in recent days and is a critical cushion. Further down, 1.2155 was a swing low in August, and it is followed by 1.2110.
Looking up, Wednesday’s swing high of 1.2290 is the first line to watch. It is followed by 1.2245, which capped the pair in late September. It is followed by 1.2205, which held it down in early September. October’s high of 1.2415 is the next level to watch.
Equities Contributor: FXStreet
Source: Equities News