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Pound Sterling Finds Support on the Charts as Downing Street Bids to 'Get Brexit Done'

Image © Bundesministerium für Europa, Integration und Äußeres

- GBP nears support on charts against EUR and USD.

- Seen steadying as Gov pushes ahead on Brexit path.

- Withdrawal Bill approved by MPs ahead of weekend.

- MPs vote on final deal is out, new 2020 cliff edge is in.

- Johnson aims for January 09 ratification of Brexit pact.

- GBP also contemplating new BoE Gov, Q3 GDP revision.

The Pound rose against all major rivals in the final session of the week and was underpinned by technical support on the charts as Prime Minister Boris Johnson sought in parliament to 'get Brexit done' . 

Prime Minister Boris Johnson passed an amended Withdrawal Agreement Bill (WAB) through the House of CommonsFriday, setting the ball rolling on the new government's attempt to 'get Brexit done'.

Johnson is aiming to have the withdrawal agreement ratified by January 09 and with a new 80 seat majority up his sleave in parliament, there's little that can be done to stop him. However, the PM's pursuit of an orderly January 31 EU exit will be aided by changes made to Friday's bill. 

Above: Pound-to-Euro rate shown at hourly intervals.

Friday's amendments eliminate parliament's role in the next stage of negotiations, meaning Johnson will no longer need the support of MPs to implement the future relationship agreement that will result from those talks - a potential double-edged sword for both Brexit supporters and 'remainers'.

They also legally prohibit government ministers from extending the transition period that's set to underwrite the status quo between a January 31 EU exit and the end of 2020, which has created a new 'no deal' Brexit 'cliff edge' and drawn criticism from the opposition as well as Pound Sterling this week. 

"No sign at all of a pivot towards a softer Brexit here – unless one ignores the fact that Boris has only got to where he is today by repeatedly tearing the steering wheel out of the vehicle, a negotiating tactic his critics seem to keep failing to recognise," says Michael Every, a strategist at Rabobank

Above: Pound Sterling performance Vs major rivals Friday. Source: Pound Sterling Live.

Pound Sterling was the best performing major currency on Friday after finding support on the charts but it's bottom of the G10 bucket for the week overall and by a country mile as well, with the British currency having shed more than 2% against every one of its most frequently traded counterparts. 

"The broad outline of a UK‑EU trade deal by 31 December 2020 will be difficult but still possible to achieve because the UK and the EU start from a position of identical rules and entwined supervisory frameworks," says Elias Haddad, a strategist at Commonwealth Bank of Australia. "GBP/USD will remain contained within a 1.3000‑1.3500 range over the next few months."

Above: Pound Sterling Performance Vs major rivals Friday. Source: Pound Sterling Live.

Losses have blighted Sterling through much of this week since reports of the new 'cliff edge' first emerged, partly because investors had allowed themselves to believe that a large parliamentary majority for Johnson would bury the threat of a 'no deal' Brexit in the autumn dirt for good. But Johnson has a domestic audience he must play to, and another negotiation to complete.

"Unless it is to fall back on WTO rules, the UK will only be able to disentangle its links with the EU through a long and delicate process," says Jean-Luc Proutat, head of OECD economies at BNP Paribas. "Brexit is only at the beginning."

Trade talks will begin after the UK's technical exit from the EU on Janaury 31, leaving Sterling dividing its attention between Brussels, economic developments in the UK and signals coming off the charts. 

Charts were suggesting Friday that the Pound should remain supported around current levels against the Euro and Dollar over the coming days.

"GBP/USD probes the October 21 and 31 highs at 1.3013/1.2976 which are to offer support. Further support can be seen along the 55 day moving average at 1.2896. Minor resistance comes in around the May high at 1.3187 as well as at the January high at 1.3217," says Axel Rudolph, a technical analyst at Commerzbank. "Failure at the 1.3013/1.2976 support area would put the 200 day moving average at 1.2695 back on the plate."

The Pound-to-Euro rate was trading around 1.1731 but support is located a short distance away and spans the gap between 1.1627 and 1.1667.

Above: Pound-to-Dollar rate shown at hourly intervals.

Pound Sterling was aided on Friday by an upward revision to the Office for National Statistics estimate of UK GDP growth in the third quarter. The ONS now says the economy actually grew by 0.4% that quarter, rather than the 0.3% initially reported although it remains the case that growth will slow from the 1.4% seen in 2018 in the absence of a 0.5% increase in the final quarter. 

The economy contracted by 0.1% in the second quarter after a 0.6% increase in the first three months of the year, although the Bank of England (BoE) said Thursday that a revival of business investment might lift growth next year if the path toward new preferential trade arrangements with the EU becomes clearer. 

"The most difficult part of the whole process - defining Brexit in concrete terms - is, therefore, still to come," BNP Paribas' Proutat writes in a research note Friday. "The withdrawal agreement does not guarantee a trade deal, and the risk remains that, for lack of ambition or time, the UK and the EU will go their separate ways without agreement. In such an eventuality, World Trade Organisation rules would apply, to the benefit of no one at all."

President Donald Trump's 'phase one deal' with China was also billed as reducing downside risks to both the UK and global economies. 

Bank Rate was held at 0.75% Thursday and the BoE reiterated that borrowing costs could go either up or down in the next change, although the outlook could change as new Governor Andrew Bailey takes centre stage as head of the bank and Monetary Policy Committee from March 16. Two of the nine-strong MPC have already voted to cut rates and if Bailey is also of that disposition, he'd only need to persuade two other members to vote with him for rates to be lowered. Pound Sterling is not prepared for a rate cut any time soon.

"He has never served on the Monetary Policy Committee so we don’t know whether he’s a dove, a hawk or somewhere in between (perhaps an “owl” as new ECB President Christine Lagarde describes herself!). His first MPC meeting will be 26th March. Carney will extend his term from 31st January to 15th March to fill the gap," says Paul Dales, chief UK economist at Capital Economics. "The ease at which Johnson’s Brexit divorce bill passed through Parliament today illustrates the power the new government has over Brexit. But uncertainty over the UK’s future relationship with the EU will probably hold back the economy and keep the pound well below $1.35 throughout most of 2020."

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