British pound price forecast for December 09 2020

2020-12-09

Pound rolls the dice. Forecast as of 09.12.2020Dmitri Demidenko

How many times has the GBP faced a binary scenario in the last four years? How will the referendum end? Who will win the parliamentary elections? Will London and Brussels sign an agreement to extend the transition period? The result is unpredictable, and it gets more difficult to develop a [GBPUSD][1] trading plan.

Weekly [GBPUSD][1] fundamental forecast

One must pay for the errors. The UK had to pay a very high price for not ignoring the threat of COVID-19 at the beginning of the pandemic. Moreover, according to Andrew Bailey, governor of the Bank of England, a no-deal Brexit will cost even more than Covid. The UK will lose access to the EU market and face tariffs up to 40%, which would cause long-term damage to the UK economy. 43%of the UK exports are sent into the EU. Boris Johnson warned last year that a no-deal Brexit would represent “a failure of statecraft for which we would all be responsible.” He is about to face another failure now.

The [GBPUSD][1] crash on December 7 resulted from disappointment. Amid the Brexit deal’s growing chance to 85%-90%, the pound grew 5% versus the US dollar in November and reached the highest level since May 2018 in early December. However, the UK Prime Minister Boris Jonson and the European Commission President Ursula von der Leyen announced that there are great sticking points in the Brexit trade talks, and the talks are far from an agreement. The sterling responded with a drop. The UK-EU talks resumed, and the sterling has gained back some of the losses.

Next, the UK agrees to revise the internal market law and cancel the arguable issues contradicting the deal with the EU signed last year. AS a result, the [GBPUSD][1] surges to the bottom of figure 34. The pound’s one-month volatility versus the euro and the dollar is extremely high; it has risen by about a third over the past few days and reached its highest level since the sell-offs in global financial markets in March. The relative cost of hedging against the pound drop’s risk is currently the highest among the world’s major currencies.

Dynamics of the pound volatility versus the euro

Source : Financial Times

Dynamics of hedging cost for pound drop

Source : Bloomberg

Boris Johnson must have been too far in the matters of the internal market law. He gave out his last trump card, abandoning the arguable issues of the law. Johnson’s attempts to force the EU to make concessions have turned France and Germany against the UK. France and Germany announced that the Brexit issues were not to be included in the EU summit’s agenda on December 10-11, which means the EU position is tough and it won’t satisfy the UK demands.

The situation came to a head, and the investors’ confidence in the positive results of the Brexit talks looks even more surprising now. The sterling remains stable; the median forecast of the analysts polled by Reuters suggests the [GBPUSD][1] should be at 1.39 in twelve months. They say the pair will be trading in the wide trading range of 1.31-1.36 because of the concerns about Brexit. However, the market should stabilize after a while, and the pound will continue the uptrend.

Weekly [GBPUSD][1] trading plan

I believe the lower chance of the Brexit deal, which is down from 85%-90% to 50%-60%, resumed the binary scenario that the sterling has come across quite often over the past four years. The Brexit deal will push the [GBPUSD][1] up above the high of December and higher, towards 1.367. If the Brexit talks fail, the pound to the dollar will go down to 1.314, and next to 1.307. It’s time for gamblers to bet on the pound.

Price chart of GBPUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

Rate this article:

( {{count}} {{title}} )