Brexit Negotiators Kicking the Can? (a Look at GBP/USD)

Negotiations this week seem to have concluded with a bang. One of the members of the EU negotiation team tested positive for COVID, which called an end to the higher level of negotiations.

This means Monday will supposedly be a critical day. According to EU officials, that will be the deadline for an agreement to be made if the deal is to be translated and ratified before the end of the year.

But, in typical Brexit fashion, they are already finding a way to push the deadline back and kick the can down the road even further. They are now looking at the possibility of being able to ratify the agreement between Christmas and new year, which would give a bit of an extension on the deadline, and there’s even talk of having a Provision Application of the agreement.

This would mean as long as the EU leaders sign off on the deal this year, they can go ahead with the agreement provisionally at the end of the Brexit transition period on 31 December, and go through the ratification process afterwards. In other words, we may even see negotiations going on right up until the end of the year... Merry Christmas!

Has The Rest of The EU Had Enough?

An EU diplomat did give a briefing this morning and said “Gaps are only slowly shrinking on core issues like level playing field, governance and fisheries” and there is growing concern that there isn’t enough time left.

In fact, several European leaders including French President Emmanuel Macron and Dutch Prime Minister Mark Rutte have urged the European Commission to begin putting contingency measures in place for the likelihood of no deal being made.

But Brexit isn’t really top of their agenda at the moment, since they have bigger fish to fry due to issues with the EU budget. Hungary and Poland are threatening to veto the budget over the ‘rule of law’ and it’s thrown a massive spanner in the works.

So on the Brexit side of things, it seems some major EU leaders have lost interest in negotiating. If a deal can be done, they’d accept it, but they won’t compromise on the ‘level playing field’ issue that’s holding things up, since they don’t want Britain to undercut the EU after it leaves. This stance was made stronger by Johnson’s controversial Internal Market Bill decision.

Could We Have A Brexit Deal By Monday?

Right now, negotiators on both sides are saying a deal can be done quickly but only if the leaders on the opposite side are ready to make ‘political decisions’. In other words, give in on the issue of fishing waters, level playing field and governance.

However, even if the EU leaders are losing interest, there is still one person who will desperately want a deal and that’s Michel Barnier. He’s quickly approaching the mandatory retirement age as he turns 70 in January. He will see a deal as the defining moment of his career and will definitely not be wanting to end his career with no deal being done. So negotiations are likely to go all the way to the very end.

With all this in mind, I’m not sure we will get a deal by Monday, but I would still expect the pound to be quite sensitive. Not much has changed since my analysis on Monday regarding key levels, other than the fact that on Wednesday we saw the price test and fail at the daily trend line again. So I’m still observing those key levels. It does look like we’ll close the week right at that 1.33 solid weekly significant level.

So perhaps with some good news on Monday we could see the needed surge of momentum to finally move past it. If not, looks like we’ll be failing at that level once again.

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