• A combination of diverging forces failed to provide any impetus to GBP/USD on Friday.
  • Coronavirus jitters continued benefitting the safe-haven USD and capped the upside.
  • Brexit optimism underpinned the British pound and helped limit losses, at least for now.

The GBP/USD pair seesawed between tepid gains/minor losses and finally settled nearly unchanged for the third consecutive session on Friday. The pair once again showed some resilience below the very important 200-day SMA and reversed an intraday dip to sub-1.2700 level in reaction to some optimistic Brexit-related remarks. The UK PM spokesman said that they are working hard to reach a deal with the EU. The spokesman also said that the UK has useful exchanges with the EU in recent weeks and is working with the EU on N.Ireland Brexit protocol.

The pair jumped to three-day tops, albeit struggled to capitalize on the move beyond the 1.2800 mark amid sustained buying around the US dollar. The optimism over additional US fiscal stimulus measures was overshadowed by concerns that the second wave of the coronavirus infections could derail the economic recovery. This was evident from a turnaround in the global risk sentiment, which benefitted the USD's safe-haven status and capped the upside for the major. The USD had little reaction to weaker than expected growth in the US Durable Goods Orders.

In fact, the headline orders fell short of consensus estimates and increased a modest 0.4% in August. This marked a sharp deceleration from the previous month's upwardly revised reading of 11.7%. Ex-transport orders also missed expectation and rose 0.4% MoM in August. However, non-defence capital goods orders (excluding aircraft and parts) - seen as a proxy for business investment - jumped 1.8% during the reported month. Nevertheless, the USD climbed to fresh two-month highs and recorded its biggest weekly gains since March.

However, worries about the lack of any further US fiscal stimulus measures and political uncertainty in the run-up to the US presidential election in November held the USD bulls from placing fresh bets. This, in turn, assisted the pair to regain some positive traction on the first day of a new trading week. In the absence of any major market-moving economic releases, either from the UK or the US, the market focus will be on the ninth round of Brexit trade talks, starting on Tuesday. In the meantime, the pair seems more likely to remain confined in a range.

Short-term technical outlook

From a technical perspective, the lack of any strong follow-through buying suggests that the near-term selling pressure might still be far from being over. That said, sustained strength beyond the 1.2800 mark might trigger some short-covering move and push the pair back towards the 1.2855-60 resistance zone. Some follow-through buying should assist the pair to climb further to reclaim the 1.2900 mark, which if cleared decisively will negate any near-term bearish bias and pave the way for a move towards the key 1.3000 psychological mark.

On the flip side, it will be prudent to wait for a bearish acceptance below the very important 200-day SMA before positioning for any further depreciating move. The mentioned support coincides with the 38.2% Fibonacci level of the 1.1412-1.3482 positive move, around the 1.2685-75 region. A convincing breakthrough will reaffirm the negative bias and turn the pair vulnerable to accelerate the fall to the 1.2625-20 horizontal support en-route the 1.2600 mark. The downward trajectory could further get extended further towards mid-1.2500s before the pair eventually drops to the key 1.2500 psychological mark.


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