Hope for the best, prepare for the worst. This principle was used by traders, gradually buying the pound as the GBP/USD quotes fell. However, any patience has an end, and no matter how much the negotiators reschedule critical deadlines, date X will still come. It may well be as early as the evening of December 7, when British Prime Minister Boris Johnson will talk with European Commission President Ursula von der Leyen. The danger of getting a no-deal Brexit has reached its peak. No wonder someone lost their nerve and started selling sterling.

At the auction on December 7, the pound lost about 1% of its value against the euro and the US dollar, and the day is not over yet. The current result is the worst since September, and the GBP/USD pullback risks continuing. A number of indicators signal that the US stock market is overbought, and problems with the distribution of vaccines may trigger a sell-off in the S&P 500. In addition, the net shorts of asset managers for the dollar fluctuate near the multi-year bottom, which increases the risks of correction of dollar pairs. As a result, after three consecutive weeks of falling, the USD index has the opportunity to recover, which will contribute to the development of a pullback for the analyzed pair. An inconclusive Brexit will only accelerate this process.

Dynamics of S&P 500 and market sentiment:

Dynamics of the USD index and positions of asset managers in the US dollar:

So far, London and Brussels are scaring each other with ultimatums, and the European-British confrontation is smoothly flowing into the classic Franco-British one. Boris Johnson warns that he will leave the talks within hours if the EU does not agree to cut its demands, and Emmanuel Macron threatens not to ratify the agreement if there are no long-term benefits for France.

To achieve the result, the efforts of both parties are important. And if one of them is represented by several countries, each of which has its own interests, it becomes extremely difficult to sign an agreement. According to Irish Prime Minister Micheal Martin, the probability of a successful Brexit is 50-50, and it is unlikely that anyone can be too optimistic in the current situation. Until December 7, the market was fully confident that the glass was half full, which allowed GBP/USD to soar to a 2-year peak just above 1.35, but gradually traders are returning to reason.

According to the consensus forecast of Bloomberg experts, the pound will rise against the US dollar to 1.35 if the divorce agreement between London and Brussels is signed, and will fall to 1.25 if this does not happen. It is obvious that the downside margin is significantly larger, and a number of players decided to take profit on longs, which was the catalyst for the GBP/USD collapse below 1.33.

Technically, the daily chart of the pair has a Splash and reversal with acceleration pattern, according to which, the trend from upward to downward will change only if the GBP/USD quotes fall below 1.303. In the meantime, the rebound from support at 1.3195 and 1.3275, followed by a return of the pound above $1.3275 and $1.3375, respectively, should be used for purchases.

GBPUSD daily chart: