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The pound sterling plummeted after London and Brussels failed to find a common language on the weekend of December 19-20, the European Parliament said that it would not be able to ratify the deal in 2020, as a critical deadline was missed, and a new strain of COVID-19 was discovered in the UK, which forced Boris Johnson to introduce additional restrictions. The markets until recently flattered themselves with hopes of concluding a Brexit deal on the falling flag, but as soon as they lost their illusions, the bears on GBP/USD rushed to the attack.
Fisheries are a stumbling block on the road to consensus. European fishermen earn about €650 billion a year in British waters, and Brussels was ready to unfasten 15-18% of this amount, subject to maintaining access for 8 years. London wanted 80%, and realizing that things would not get off the ground, the EU made a new proposal of 25% and 6 years. Boris Johnson said that he needed clarification, the deal was not reached, the European Parliament announced the impossibility of ratifying it before January 1, sterling went to the bottom.
The British Prime Minister is not satisfied not only with fishing, but also with the European Aid Mechanism, which allegedly allows EU countries to receive more subsidies than the UK, which violates the rules of the level playing field. There is practically no time left, and the negotiators are still so far from each other that Cabinet member Michael Gove begins to talk about "side deals" like the United States and Britain. Say, if a comprehensive trade agreement cannot be reached, then why not break everything up into small agreements? How can such conversations make investors feel any other than disappointment?
The situation for the GBP/USD bulls is aggravated by the discovery of a new strain of COVID-19, which is spreading 70% faster than the previous ones. And although there is no evidence of a higher mortality rate caused by it, and the vaccine is likely to help against all existing infections, Boris Johnson was forced to introduce new restrictions in London and the south-east of England. Due to the pandemic and Brexit, the British economy is showing worse results than large developed countries, how can the pound grow in such conditions?
Depth of recession in major developed countries of the world:
Things are going badly, but they could go even worse if the decades-old regime of free movement of goods, services, people, and capital remains a thing of the past. Mutual import duties of the UK and the EU and the risks of a double recession of the British economy will increase the likelihood of monetary expansion of the Bank of England, including a reduction in the repo rate below zero. It seems that the markets are beginning to believe that the worst can not be avoided. But is it so?
Technically, a break of support at 1.318-1.3185 is fraught with the activation of the Shark pattern and the continuation of the peak to the target at 88.6%, which corresponds to the mark of 1.293. Purchases of GBP/USD will become relevant from the area of 1.293-1.2975 or in the case of a return of the pair above 1.333-1.3335. In the meantime, you should give preference to short-term sales or stay "out of the market".
GBP/USD daily chart:
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