Brexit at risk of failure

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Market Watch review. 07.12.2020

In today's release, we’ll cover the following topics:

  • Britain is leaving the EU without a deal. 
  • Collapse of the GBP / USD currency pair. 
  • Sale on the oil market. 

I will start today's review with one of the most unexpected and resonant news – Britain is ready to leave the EU without a deal. This news was spread by quite a lot of reputable media. What makes this news unexpected and resonant is that on Friday everyone was expecting a deal to be concluded over the weekend. As a result, demand for GBP increased, contributing to a further increase in interest in risk. But today the situation has changed dramatically.

In the first few hours of the European trading session, the GBP/USD currency pair fell by more than 200 points. At the same time, official confirmation that Britain is ending negotiations without reaching an agreement on a global deal will put additional pressure on the pair in the medium term. However, unexpected progress in these negotiations should not be excluded. Let me remind you that Boris Johnson has previously threatened to leave the EU without a deal.

Shifting to the US session, I will pay attention to a moderate decline in futures on US stock indices, while the so-called fear index - VIX returned to the green zone. Given all this, the US dollar has the potential to grow and, as a result, return some of the previously lost positions. With the opening of markets in the US, the demand for USD may increase significantly.

Pay attention to the EUR / USD currency pair. The general increase in uncertainty about the prospects for a deal between the EU and Britain has significantly increased demand for the US currency. Let me remind you that the USD serves as a protective asset, so in moments of uncertainty, it strengthens. As a result, there is a risk of further weakening of the pair to 1.2050 – the previous low, a break of which will open the way to 1.1900.
Another risky asset is oil, so before the opening of the US trading session, the price of WTI benchmark oil fell below $45.5 per barrel. But only a further increase in uncertainty can return quotes to the next strong technical support level at $44.6 per barrel. Let me remind you that the recovery of the global economy and industrial production in particular contributes to the growth of oil prices. Therefore, only the appearance of a threat to the further development of the world economy will return sellers to the oil market.

Closely monitor the news background and be prepared for all the surprises of the market.

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