GBP/USD Under Pressure, EU-UK Trade Talks Need a Reboot

GBP/USD under pressure, EU-UK trade talks need a reboot – that is the headline you’ll find on many currency exchange trading systems’ graphs. This divergence in the behavior of the two major world currencies has been rising steadily and seems to be making traders “appear” to “see” it, which they are.

The European Union and the United Kingdom of Great Britain and Northern Ireland are headed for a “standstill” in their negotiations for the U.K. to leave the European Union. The net result will likely be a loss of trade opportunities for British businesses. It should be noted that even as the U.K. becomes more isolated in the world, the U.S. dollar is no longer weakening with respect to the euro.

A global financial climate that is full of uncertainties is not always a very good thing for investors. If the UK “goes”, all the other members of the European Union might go, too. That means a strengthened U.S. dollar versus the euro – thus, more Americans buying more of the products and services imported from the U.K.

We’re living in interesting times, indeed. The pound sterling is dipping against the dollar but hasn’t totally collapsed yet. The only question mark for the market is how far the price of imports can be reduced when the U.K. will no longer be part of the single market, leaving it open to tariffs.

GBP/USD is now moving at a strong incline, following developments over the weekend. It is very likely that the current set of negotiations in Brussels between the EU and the U.K. will yield some kind of settlement agreement. In this article we will examine what it means and how investors should react to the latest development. However, we would note that it is not uncommon for the market to react very negatively to particular developments in the financial world, and indeed to this point this is just one of several very significant news stories.

There’s no reason to be fearful of the outcome of the negotiations, of course. It should be noted that those who are urging the British to leave the EU would do well to read the tea leaves and watch the clouds. Again, the markets have not taken this latest development too well.

GBP/USD closed below the psychological level of 1.0894 and was now moving up for the first time in two days. All of the analysts who have recently issued technical analysis signal lines for this pair should be re-assessing their recommendations.

Traders in the European Union are feeling “under pressure” from the potential volatility created by the Brexit vote. The low-hanging fruit has already been picked by the Europeans and investors are understandably trying to take advantage of the situation to make more money.

That’s one reason why the currency market has become so active recently. More currency pairs are showing signs of weakness, while a few have shown signs of strength. Here’s a handy summary chart to summarize the dynamics:

In terms of the pound and the euro, the result of the British referendum vote is causing the two to move together in different directions. GBP/USD has already turned lower following news that the EU will impose tariffs on any UK exports that it considers to be subsidised.

GBP/USD is already moving up about half a cent after the European Commission announced that it will outline a plan for the U.K. to remain within the single market – without freedom of movement. The message to the pound is pretty clear: if you want to make some money, exit the EU.GBP/USD has been way too reactive recently to a complicated story like the currency negotiation in Brussels. If the market starts to calm down in the next couple of hours, it should be considered a buy or sell depending on how you like your risk profile.