EUR / GBP slips back below 0.9200 from 0.9230 highs as Brexit hopes hang in the balance

• EUR / GBP is far from its best levels and below the 0.9200 level again, although it continues to trade with significant gains on the day.
• The German foreign minister hinted that Brexit talks could continue beyond Sunday’s deadline, but hopes for a deal remain low.

Before the start of U.S. business hours on Friday, the EUR/GBP rose to 0.9230 amid increasingly pessimistic mood regarding the state of Brexit negotiations and the chances that a deal could be reached and ratified before the end of the year when the UK’s transition period to exit the EU single market. Over the past few hours, in a move that appears to have been driven primarily by profit-taking, the pair has pulled back from the highs and below the 0.9200 level again and is currently trading at 0.9165. Still, on the day it was up about 40 pips or 0.4%.

Will the talks continue last Sunday?

Earlier in the week, British Prime Minister Boris Johnson and EU Commission President von der Leyen agreed to continue negotiations until Sunday, when a firm decision would be made on the future of the talks. Amid the increasingly pessimistic mood regarding the ability of the two sides to close the gaps on issues of level playing field, state aid and fisheries, markets initially seemed to take this deadline as “decisive or decisive” for the conversations. In fact, as Johnson and von der Leyen put it, either the two parties would have had to make significant progress toward an agreement to justify continuing the talks or the talks would effectively end, with efforts aimed at preparing for trade. under the terms of the WTO as of January 1.

But German Foreign Minister Heiko Mass came out with some comments earlier in the day where he hinted that the talks could continue last Sunday; “The Brexit discussions will not fail due to the fact that we may need a few more days after Sunday,” said Mass. How many previous EU / UK negotiation deadlines have been ignored? If this is the EU’s way of encouraging the public to keep kicking the can in the future, it should come as no surprise.

Brexit will continue to be the main factor driving the EUR / GBP cross, and the opening of the Asian session next Monday, which will follow the supposed deadline of the next Brexit on Sunday, should be interesting; If the can is kicked down the road, as now seems likely given what German Foreign Minister Mass said, then the GBP reaction will likely be muted, although there is likely a negative bias at play given that the clock ticks. moving forward to the 31st. December deadline for a deal.

If the UK and the EU decide to suspend the talks, then the EUR / GBP could see a considerable gap to the upside. Conversely, in the seemingly unlikely event at this point that significant progress towards a deal is made, then the EUR / GBP could see an even more considerable gap to the downside, given that markets appear to be pricing at this point a higher probability of a no. -project that a deal.

EUR / GBP could go anywhere

In the event that major progress is made towards a deal by Sunday, the EUR / GBP is likely to see a downward move, perhaps even as low as September and November lows at 0.8860. Conversely, if the talks collapse, a move towards September highs is likely just ahead of the 0.9300 level.

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