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The pound-dollar pair fell more than a hundred points on Tuesday. The downward correction was due not only by the strengthening of the US dollar but also by the Brexit. In general, the pound sterling has been showing surprising resilience lately. Traders of the GBP/USD pair ignore many negative signals and react rather sharply to positive news regarding the prospects of the negotiation process.
Figuratively speaking, the market has acquired a certain "immunity" to negative or critical messages that are regularly voiced by either the British or the European side. There is a general consensus among traders that a trade deal between London and Brussels will still be concluded, so the pound ignores all news signals that suggest otherwise. This "stress tolerance" seems to be based on the experience of past years - after a series of failed rounds of negotiations, after mutual accusations and shifts in" deadlines", Britain and the EU still concluded a long-suffering agreement.
According to many journalists (both British and European), the parties are now going through a similar path which ends in the conclusion of a trade deal. Hence the general confidence in the "happy ending". At the same time, traders mostly ignore the current plot twists.
Such a fundamental picture allows the pound-dollar pair to hold at the borders of the 29th figure, although the marker of the renewal of the upward trend is the 1.3000 mark - only after buyers overcome this resistance level and consolidate above it, it will be possible to talk about a reversal of the situation. Whereas now the pound sterling is subject to local shocks - with general stress resistance, the GBP/USD pair may lose up to 300 points, with the support level at the base of the 27th figure, reacting to the current news flow.
The price dynamics on Tuesday served as an additional confirmation of this fact. In just a few hours, the pound weakened by more than a hundred points. The negotiators were able to find a compromise on many points of the future trade deal but again stalled on the most difficult and key issues. One of them is the issue of fishing. Note that the disagreements regarding this matter are almost insurmountable. London considers the EU's demands to provide access for European fishermen to British fishing areas unacceptable, calling it incompatible with the UK's status as an independent coastal state. Brussels, in turn, insists on the opposite.
According to some reports, EU's chief negotiator Michel Barnier is allegedly ready to back down on this issue - he proposed a model based on the principle of "zonal binding" - that is, British quotas will depend on the length of stay of fish populations in the waters of the state. According to Brussels, this is also London's interest: with climate change, large volumes of fish will shift to the exclusive economic zone of Britain. In addition, according to press reports, Barnier has backed down from the requirement to leave EU ships the current level of access to UK waters. According to him, this policy was initially unbalanced, therefore it is subject to revision.
The market received unofficial information on Tuesday that Britain had rejected the option proposed by Brussels. London officials insist that fishing is a symbol of British sovereignty, which means that British fishing grounds should be owned primarily by British fishermen, not French, Icelandic, or Danish. Meanwhile, over 70% of the fish caught in British coastal waters (which are quite rich in catch) are sold in the European Union.
Such an informational background disappointed traders, and the pound slid down the entire market - including in a pair with the dollar. However, the reverse process is already underway, although no refutations have been reported regarding the above negative news. The market still blindly believes that the parties will eventually find a compromise on this issue or isolate it from the overall structure of a trade deal (although the second option looks unlikely).
In other words, we have once again witnessed the resilience of the pound sterling. The general confidence in the happy ending kept the sterling from falling on a large scale. This suggests that long positions are in priority on the GBP/USD pair, and temporary downturns can be used as an excuse to open long positions.
Technically, the pair is trading in the Kumo cloud between the middle and upper lines of the Bollinger Bands indicator on the daily chart. The target of the upward movement is 1.3010, which is the upper line of the Bollinger Bands on the same timeframe. To overcome this target, a sufficiently powerful informational impulse is needed, which will open the doors for buyers to the area of 30 figures.
Another round of negotiations is to be held in London on Wednesday and is expected to last until Friday (from Monday, negotiations will resume in Brussels). The market will again live on expectations of positive results, which means that the GBP/USD bulls have every chance to test the 30th figure.
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