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In the latest episode of Brexit, EU leaders finally gave their blessing for the draft transition deal, but the drama may be far from over. Here’s what’s coming up.

BOE Governor Carney’s speech (Nov. 26, 6:30 pm GMT)

To kick things off this week, BOE head honcho Carney has some words to say at the Policy Exchange event in London. However, this could mostly focus on discussions about the the new book by Alan Greenspan and Adrian Wooldridge: “Capitalism in America: A History” rather than his policy bias.

Still, do watch out for questions related to interest rates that might prompt clues on what the BOE has up its sleeve. Hints that policymakers are more confident about a Brexit transition deal and a continuation of their tightening efforts could prop the pound higher.

BOE Financial Stability Report (Nov. 28)

By the middle of the week, the BOE will release the results of its latest stress tests on the banking sector. Many are keen to find out if U.K. financial institutions could withstand contingency plans in the event of a “no deal” Brexit.

Note that this report is released only twice each year, which means that the results could carry a lot of weight. A positive outlook could add to the improving sentiment related to Brexit developments while indications of more financial risks could undo some gains.

More on Brexit

Of course, what’s another trading week without Brexit headlines shaking things up for pound pairs? So far, sterling was off to a good start on news that EU leaders gave their thumbs-up for the draft deal.

But PM May still has her work cut out for her as her next task involves rallying enough support for Parliament to back the deal. The vote is due on December 12, which means that market watchers would likely be on their toes and sensitive to MPs’ remarks until then.

If the Parliament winds up rejecting the Brexit deal, the U.K. might be forced to exit the region without any transition plans at all or yet another attempt to renegotiate an agreement. Either way, this would bring plenty of uncertainty for the economy and probably a lot of pain for the pound.

Last Week’s Price Review

The pound edged out a win against the Greenback and the yen and is currently the second top-performing currency of  the week (as of 3 pm GMT), which is a nice recovery after finishing in last place last week.

Overlay of GBP Pairs: 1-Hour Forex Chart
Overlay of GBP Pairs: 1-Hour Forex Chart

The pound found buyers from the get-go, likely because of news over the weekend that a leadership challenge against Theresa May failed to realized.

However, the pound slumped hard during Monday’s London session when British PM Theresa May gave a speech since May stuck to her guns and defended her Brexit deal. And remember, the attempt to oust Theresa May from power was prompted by her deal.

Anyhow, the pound eventually clawed its way back up, although there were no apparent catalysts. The pound then traded sideways for a while before encountering sellers ahead of the BOE’s inflation report hearing.

And when the report got underway, the pound spurted higher when BOE Guv’nah Carney expressed support for Theresa May’s Brexit deal. There was no follow-through buying, though, and the pound’s price action became mixed after that.

The pound’s price action became uniform again during Thursday’s London session since the pound spiked higher across the board when a draft of the post-Brexit relationship between the U.K. and the E.U. was leaked.

You see, the draft revealed that the U.K. and the E.U. are still gunning for a free-trade deal while also planning to do some prep work so that a trade deal can be quickly hammered out.

Perhaps more importantly, the draft revealed that there were plans to scrap the backstop solution.

“The Parties recall their determination to replace the backstop solution on Northern Ireland by a subsequent agreement that establishes alternative arrangements for ensuring the absence of a hard border on the island of Ireland on a permanent footing.”

Remember, some MPs have expressed dissatisfaction with Theresa May’s deal partly because of backstop solution since that’s seen as a sneaky way to keep the U.K. within the E.U.

Getting back on topic, the draft was apparently the real deal since European Council President Donald Tusk tweeted the following after the draft was leaked.

Theresa May also later confirmed that the draft was the real deal when she gave a speech during Thursday’s U.S. session.

Anyhow, there was no follow-through buying and the pound’s price action became mixed but somewhat range-bound for the rest of the week.