Brexit
The EUR to GBP exchange rate moved sharply lower yesterday. The news that the European Union and the United Kingdom are back at the negotiation table regarding a possible Brexit deal sent the GBP higher across the board.
In fact, the GBPUSD pair advanced the most it did in the last six months. Moreover, the GBPCHF rose back above 1.19 in what looks to be an attempt to break above 1.20.
The EUR to GBP exchange rate consolidates in a triangular pattern on the daily chart for more than six months now. In doing so, it reacted promptly to any Brexit deal news.
The 0.90 level was the benchmark for understanding how negotiations go. As long as the cross pair held above 0.90, that is in the no-deal territory. However, any break below signals a deal is still possible.
Yesterday’s news that a Brexit deal is possible by mid-November came as a shock to market participants. After all, the EU Summit last week concluded with no significant advance in negotiations and with the two parties blaming each other for the lack of progress.
However, in politics, negotiations are never completely stopped. Even if the December deadline goes by, and there is no deal, the likelihood is that, eventually, a deal will be reached. The argument is that it is in the interest of both parties to have a deal, as otherwise, both UK and EU citizens will suffer.
The triangle mentioned earlier appears in the chart below. While the timeframe is quite big, it is essential for understanding the nature of this triangle.
This is called a non-limiting triangle, one that forms at the end of complex corrections. As such, it represents a reversal pattern. To trade it, conservative bears may want to wait for the price to break the lower edge of the triangle at 0.8920. Next, place a stop loss order at 0.9150. Finally, set the target at 0.82 and give the trade some time to reach it.
