Hard Brexit canceled: the pound pulled up

Last week, the pound/dollar pair approached the borders of the 30th figure twice, but then traders could not overcome the price barrier, opening the way to further growth. As a result, bears of GBP/USD seized the initiative, lowering the price to the 28th figure. As it turned out, not for long: today the pair confidently broke through an important resistance level and currently holds around 1.3050.

In general, the British currency has recently become more attractive for investors. If last year the GBP/USD pair each month (since April) lost hundreds of points (eventually falling from 1.42 to 1.25), this year the bears can not develop a more or less large-scale downward movement. The main difference between the situations is that the earlier Brexit date (29 March 2019) is no longer the boundary beyond which the chaotic scenario should disappear. Although in the autumn of last year, with each failure in the negotiation process, experts counted the remaining days to the"x-hour". But after the January events in the British Parliament, the market lowered the probability of implementing a "hard" Brexit scenario. And there is every reason for that.

Last Monday was in many ways a defining day: it became clear that there was no "plan B" for Theresa May. Instead of the updated deal, the prime minister offered the deputies an initial draft with "cosmetic" amendments. At the same time, she promised to take into account the proposals of all political forces, and then submit them for discussion with Brussels. Despite this compromise attitude, the market came to the conclusion that in fact there was a stalemate, out of which there is not yet.

Now the British Parliament is making its amendments to the draft agreement, but they are obviously not supported by the European Union, since the key points have already been agreed with by the May team. In turn, the deputies of the House of Commons will not vote for the "plan B", which is essentially the same "plan A", but only with minor adjustments (in particular, it is about the abolition of the 65-pound registration fee for EU citizens). Given the fact that the second vote will take place very soon – January 29 – the situation is unlikely to change dramatically, although May is trying to convince Brussels to meet the British.

It would seem that the circle is closed. But today, the bulls of the GBP/USD had an unexpected reason for optimism once again. There was information on the market that Labour can support the amendment of his colleague Yvette Cooper, the essence of which is to postpone the date of Brexit at a later date (approximately, at the end of 2019). According to this proposal, Brexit is not transferred automatically – but only if the Parliament does not approve the draft deal before the end of February. In this case, the deputies will take responsibility for the negotiation process (excluding the government from it) and will move the "x-hour" to December this year. It is worth noting that such a scenario was not born only in the ranks of the Labour party – one of the representatives of the Conservative Party in the House of Commons registered an amendment of similar meaning.

Thus, the probability of a" hard " Brexit (at least in the medium term) has practically been reduced to zero, although the prospects for further negotiations look very vague. However, the market lives today, so the news that March 30 will not happen "economic apocalypse" did not happen on March 30 inspired the bulls of GBP/USD, especially against the background of good data on the growth of the UK labor market, which were published yesterday.

It is worth noting that the recent events may affect the determination of the members of the English regulator. Despite the decline in the consumer price index in December, inflation remains in the target 2% level. In addition, the level of wages continues to grow steadily: since June last year, this indicator has increased from 2.4% to 3.4%; but unemployment, on the contrary, has returned to a record low of four percent. Earlier, the central bank of Britain has pointed to the acceleration of wage growth and good results on inflation as an argument in favor of a gradual increase in rates. However, the uncertainty with Brexit did not allow the regulator to talk about any clear time frame. But now, when the probability of a" hard " Brexit has decreased as much as possible, and the release date itself can be postponed, the Bank of England can tighten its rhetoric and raise the rate by 25 basis points in the summer. The above circumstances pull up the pair, opening new price horizons for GBP/USD bulls.

Now a few words about "technique". On the daily chart, the price is on the upper line of the Bollinger Bands indicator, the lines of which demonstrate the expanded channel. The Ichimoku Kinko Hyo indicator has formed one of its strongest signals - the bullish Parade of Lines. In addition, the pair is located above the Kumo cloud, which also indicates the northern direction of the price. The strongest resistance level is located at 1.3190 - this is the upper line of the Bollinger Bands indicator on the weekly chart. Support is much lower - at around 1.2870 (the upper boundary of the Kumo cloud on D1).