14.12.201813:32 Forex Analysis & Reviews: Europe said no: pound ends the week on a minor note

The European Union told Britain "no". The leaders of the European powers refused the request of Theresa May to clarify the key points of the deal regarding the Irish border. Moreover, Brussels accused the British prime minister of the vagueness of the voiced demands. The head of the European Commission, Jean-Claude Juncker, most succinctly described the situation. "We are ready to help Britain only if we are properly explained what exactly they want from us." After that, he expressed the hope that in the coming weeks, London will formulate clear parameters for his requests. Theresa May, in turn, completely refused to comment. Contrary to the established tradition, it did not communicate with the press at the end of the first day of the summit and silently left Brussels.

Today, when the summit's final document was announced, it became clear that the British prime minister simply had nothing to say. In addition to the fact that Brussels categorically refused to revise the agreement, it further stressed that the backstop mechanism is an inseparable part of the deal that is a guarantee of the agreements reached. Any further discussions are possible only during the transition period, that is, after March 29, 2019.

This formulation suggests that London will not receive any legal guarantees regarding the validity period of the back-stop action, which means the situation has returned to zero. Obviously, this issue is now postponed to the next year, since on December 20, the British deputies are leaving for the holidays, just like their European counterparts. In the office of the British Prime Minister today, it was reported that they will work on this issue from today. However, the parliament will not be able to consider the deal until mid-January. The Austrian Prime Minister, in turn, allowed that another EU summit could take place in January, at which "additional guarantees" could be agreed upon, but only if London formulates its requirements "in an acceptable form".

As you can see, the parties prefer to voice veiled and cautious phrases, the essence of which boils down to the fact that the key decisions will be made at the last moment. According to experts, the British Parliament should vote for the deal until January 21, so that further procedural moments would end before March 29, 2019. In other words, London will need to formulate new proposals that, on the one hand, will satisfy the demands of the British deputies, on the other hand, they will allow Brussels to coordinate them without affecting the text of the deal.

The task is very difficult and looks almost impossible, so the pound today collapsed to annual lows. The probability of a "hard" Brexit is growing again, and the time until "X hour" remains less and less. Brussels, as expected, demonstrates a principled and uncompromising attitude. These are all part of a certain tactic of pressure on the British. It is noteworthy that Jean-Claude Juncker, voicing the results of the past summit "by the way", stated that on December 19 the European Commission will publish a plan of preparation for the chaotic Brexit. Thus, Europe makes it clear that the deal is needed first of all by Britain, so they must be content with the agreements that have already been reached. As they say, "to be continued ...".

While the pound is falling, the US currency again "skims off," taking advantage of the current market situation. Despite the slowdown in US inflation, the dollar is still in demand, as it is viewed by the market as a currency of refuge.

And it's not just Brexit. The fact is that this morning, China has published fairly weak data indicating a slowdown in the world's largest economy. For example, the indicator of retail sales in the Middle Kingdom fell to the level of 8.1%, this is the weakest growth rate over the past 15 years, and the volume of industrial production fell to 5.4%, that is, to the lows of February 2016. Such dynamics again actualized the problem of slowing down of the world economy, with all the ensuing consequences. In particular, regarding the prospects of tightening monetary policy by the central banks of the leading countries of the world.

The US stock market was again under pressure, while the dollar index went up again, returning to the 97-point frame. However, now we cannot talk about the rally of the dollar. Until the December meeting of the Fed (which will take place next week), the greenback will be under background pressure, given the discussions about the level of the neutral rate and the slowdown in inflation rates.

Summarizing what has been said, let's summarize. The pound ends the week on a minor note, under conditions of uncertainty and high probability of a "hard" Brexit. Theresa May's immunity from impeachment is a poor consolation since the key issue has remained in limbo. Given the prevailing fundamental background, a pair of GBP / USD has the potential to further decline. The closest support level is located at around 1.2530, this is the bottom line of the Bollinger Bands indicator on the daily chart.