GBP/USD spikes on Barnier Brexit comments

UK offered hope for bespoke deal

Michel Barnier triggered a rally in the pound on Wednesday, offering hope to the UK that a bespoke deal can be agreed on the divorce ahead of the upcoming deadline.

The news earlier in the day had been less positive, with reports suggesting that high level officials are not optimistic of an agreement ahead of the EU summit in the middle of October. This acknowledgement from Barnier that they are prepared to offer a partnership that has never existed with another third country – a significant shift from the previous position that the UK must choose a pre-existing model in any future relationship – suggests the EU is ready to soften its opposition on certain issues in order to speed up negotiations.

While this doesn’t mean the EU’s red lines have changed – in fact he explicitly confirmed that they must be respected, along with the UK’s – it does suggest that more constructive conversations can happen to find a workable solution that suits both sides, should one exist. That’s a big change from the focus on punishing the UK for voting to leave which appears to have been the case for the last two years.

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Traders have responded very positively to these comments, with the pound rising close to 1% and back towards 1.30 against the dollar, from below 1.29 before the comments, and a similar amount against the euro.

GBPUSD Daily Chart

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Traders have become very concerned about negotiations in recent months, particularly the increased talk of no deal Brexit and these comments will at least start to alleviate those concerns. There’s still a long way to go but it would appear Theresa May and her teams charm offensive across Europe over the summer may be working.

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Will GBP rally continue?

The pound has made some impressive gains on the back of these comments and is now testing a notable technical level. Not only is 1.30 a key psychological level, as we’ve seen in the past, it’s also been support in recent months and roughly coincides with the top of a longer-term descending channel and 55-day simple moving average.

A break above here could be quite the bullish signal for the pair, particularly in the near-term after what has been a substantial sell-off. With the sell-off of recent months having currently bottomed around the 61.8% retracement of post-Brexit lows and 2018 highs, it’s possible that the future is looking much brighter for the pair. Of course, for this to be the case, these comments from Barnier need to be the start of more positive talks to come and by the looks of it, that’s something that traders are now anticipating.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam

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