Britain and the European Union reach agreement on Transition period

On Monday, Britain and the European Union reached an agreement for a transition period after Brexit. The pound strengthened on confirmation that Britain will continue to be part of the European Union for 21 months until end of 2020. Under the transition deal, the U.K. will continue implementing EU rules until the end of 2020. However the problem with the Irish border remains unsolved. The Republic of Ireland, an EU member state and the UK including Northern Ireland, do not seem to agree. This may create further inside pressures in N. Ireland as the outcome seems to be unsettled. Any further positive headlines could support the GBP and vice versa.

Cable jumped yesterday on the news, breaking the 1.4040 resistance level, however it later subdued somewhat and traded slightly below it. We see the case for the pair to trade in a sideways manner for the next couple of days with a bearish mood as the financial data due out today, could weaken the sterling. On the other hand, the FOMC interest rate decision due out on Wednesday, could support the USD. Should the bears take the reins, we could see the pair breaking the 1.3915 support level. If the bulls have the upper hand we could see the pair breaking the 1.4040 resistance line again and aim for the 1.4168 resistance hurdle.