The first "trial" round of negotiations between the head of the British government and the chairman of the European Commission ended to no avail. The parties reiterated their positions, however, none of them expressed their readiness to make any compromises, primarily regarding the timing of the transition period. By and large, at the initial stage of the negotiation process, none of the market participants expected other options. The negotiations themselves will officially begin only on February 1. The Brexit bill is still pending in the House of Commons. It is expected that the MPs will accept him in the third reading today and it will be sent to the House of Lords. After the approval of the bill by the Lords, this document should formally be approved by the European Union - a corresponding vote will be held in the European Parliament.
That is why no one expected any breakthrough from the first meeting of Boris Johnson and Ursula von der Leyen - it was more like "reconnaissance in battle", during which the parties only outlined their priorities, and in a rather mild and friendly manner. But the essence of the rhetoric did not appeal to GBP/USD traders - the pound returned to the area of the 30th figure again, after a short growth. Market participants are once again preparing for a protracted confrontation between London and Brussels, which may last more than one year.
However, the time frame of the transition period is also the subject of controversy. To be more precise, now the main political discussion has unfolded around this issue. According to the head of the European Commission, the negotiators will not be able to meet the 11-month period (that is, until the end of this year), while in the opinion of the head of the British government, the negotiation group is obliged to do this. Despite the fundamentally opposing positions on this issue, Johnson and Layen did not voice any ultimatums to each other. The head of the European Commission only lamented that if Britain is so categorical about observing the established time frames, then the negotiating groups will have to work "day and night" in order to manage to coordinate all the nuances of future relations. She also warned that in this case, the parties would be forced to prioritize, which would negatively affect the overall result. However, Johnson tactfully expressed confidence that the negotiators will cope with this difficult task, adding that London is striving for a "positive new partnership" with the European side.
And although the British currency showed negative dynamics as a result of these negotiations, the GBP/USD pair was able to stay in the region of the 30th figure. Although the bears clearly hoped for more: the first support level is at 1.2950 (the upper boundary of the Kumo cloud on the daily chart), and sellers could well test it, given how fast the pair fell in the first half of today.
Compared to other dollar pairs of the major group, the pound stubbornly resists the hegemony of the US currency. After several days of the siege, the euro surrendered and returned to the 10th figure, the yen fell in price to the middle of the 109th level, and the Canadian dollar weakened to 1.31 against the greenback (although it was trading at around 1, 29 at the beginning of the week). In each case, the US dollar is aggressively advancing, gaining lost ground. The pound, in turn, occupies a separate position - it is under the obvious pressure of the dollar, but is in a hurry to drop impulse to multi-week lows.
What is the reason for such a stress resistant pound? There are no reasons as such - the economic calendar for GBP/USD is not eventful - the main report of the week (Nonfarm) will be published only tomorrow. Political factors also (so far) have little effect on the dynamics of the British currency - the rhetoric of Johnson and Layen is predictable, while deputies of the House of Commons make predictable decisions. Therefore, the pound is forced to follow the dollar, which in turn follows the dynamics of the yield of 10-year Treasuries. The theme of the US-Iran conflict after yesterday's speech by Trump has exhausted itself - this is eloquently evidenced by oil quotes and defensive tools. In turn, the theme of US-Chinese relations is still in the shadows - the signing ceremony of the first phase of the trade transaction is scheduled for January 15. Dollar bulls took advantage of the emerging information to their advantage, as general optimism in the market returned traders' interest in risky assets. But such an unreasonable growth of the US currency carries risks, especially on the eve of tomorrow's Nonfarm.
To summarize the above, it is necessary to warn market participants from opening short positions in the GBP/USD pair - firstly, the downward movement in the pair is rather uncertain; secondly, Friday's data on the growth of the US labor market can dramatically redraw the fundamental picture for the dollar. If December Nonfarm disappoints, the GBP/USD pair may jump to the first resistance level (Kijun-sen line on D1), that is, to around 1.3200.
