Brexit: Cameron clinches deal in EU summit – EURGBP likely correct lower

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Image Via  © European Union 2016 – European Parliament / Flickr

  • EU referendum date set for June 23rd
  • UK Cabinet agrees to recommend that UK remains in a reformed EU

The EU summit negotiation between the UK and the European Union leaders was underway on Friday. The British Pound was clearly focusing on the outcome of the meeting, as the Cable ignored strong retail sales data earlier in the day pushing lower. After tweets from the negotiating members that discussions would continue into Saturday, the GBPUSD declined strongly to test intra day lows of $1.4247 but managed to reverse the gains by late Friday as the British Premier tweeted that he had negotiated a deal with the EU to give the UK a ‘Special Status‘ in the EU.

The Pound quickly pulled higher on the news, especially against the Greenback and the Euro just a few minutes before the market close on Friday. The news was later confirmed by EU President Donald Tusk noting that there was “unanimous support” for the EU – UK agreement. The negotiations was part of the British ‘In or Out‘ campaign, popularly called as the ‘Brexit’. As part of the negotiations, discussions included curbing demand for welfare, legal changes to the EU treaties and protecting the financial industry in London. Most importantly, the UK managed to get a 7-year emergency brake period where it can impose curbs on EU citizens arriving to work in the UK, among other things. The deal was being presented to the UK Cabinet earlier today (Saturday).

Details of the EU-UK deal can be read here

Looking forward, the onus now is now on the British Premier to campaign for the UK to stay in the EU in what is likely to be once in a generation affair. Following the deal, David Cameron was quoted as saying that he would campaign “heart and soul” for the UK to stay in the EU. However, he faces dissent within his own party ranks. The opponents to staying in the EU include UKIP leader Nigel Farage, and Labour leader Jeremy Corbyn among others, while Cameron finds support from Nicola Sturgeon, the leader of the Scottish National Party. Mr. Cameron later announced June 23rd as the date for holding the referendum.

Political analysts are likely to go through the deal in detail which could lead to further flip flops in the near term including opinion polls creating more uncertainty for the British Pound.

GBP – Technical Outlook

The British Pound had weakened gradually since June last year against the Greenback while declining against the Euro since last December. GBPUSD is down -2.25% for the year, while EURGBP has gained 4.81% after the ECB fell short of market expectations in the December policy meeting. EURGBP has steadily rallied to briefly trade near the 0.78 handle before showing signs of exhaustion. On the weekly chart, EURGBP has formed an inside bar after prices were rejected twice at 0.78 handle. Support to the downside comes in at 0.74 initially.

EURGBP - Weekly Chart, 20/20/2016
EURGBP – Weekly Chart, 20/20/2016

Further supporting the downside move in EURGBP is the potential March policy meeting where the ECB could decide on whether to expand its lose monetary policy even further. So far, ECB officials have kept a low profile on the issue without giving away too much. This week, Eurozone CPI data is due with expectations of another flat print in consumer inflation.

For the GBPUSD the outlook remains questionable on the weekly chart, but the daily time frame shows a reversal off the lows near 1.425. Resistance comes in at 1.46, following which 1.48 and 1.50 are likely to be tested. To the downside, a break below 1.425 will see a quick decline to 1.41 support.


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