- GBP/USD witnessed some short-covering move on Wednesday amid a modest USD pullback.
- A further recovery in the risk sentiment prompted profit-taking around the safe-haven USD.
- Bulls shrugged off COVID-19 jitters, the latest Brexit developments surrounding NI Protocol.
The GBP/USD pair staged a solid intraday bounce of over 130 pips from sub-1.3600 levels on Tuesday and stalled its recent sharp fall to the lowest level since February. This marked the first day of a positive move in the previous five trading sessions and was sponsored by a modest US dollar pullback. Investors seemed to set aside fresh virus jitters, which was evident from a further recovery in the global risk sentiment. This, in turn, prompted some profit-taking around the safe-haven US dollar and provided a strong lift to the major.
Bulls seemed rather unaffected by the resurgence of the COVID-19 infections in the UK and the EU-UK impasse over the Northern Ireland Protocol of the Brexit deal. It is worth reporting that new cases have been rising by more than 50,000 a day in the UK and hundreds of thousands of Britons are being asked to self-isolate for 10 days. On the Brexit front, the UK's chief Brexit negotiator, David Frost, demanded that the European Union agree to rewrite a deal overseeing problematic post-Brexit trade involving Northern Ireland.
The EU, however, rejected the UK’s demand for a new approach to the Northern Ireland Protocol. In fact, European Commission Vice President Maros Sefcovic was clear that the protocol could not be redrawn. Commenting on the issue, Sefcovic said that the EU will not agree to a renegotiation of the protocol and respecting international legal obligations is of paramount importance. The developments, however, did little to hinder the pair's strong intraday positive move amid absent relevant market moving economic releases.
Nevertheless, the pair settled near the top end of its daily trading range and held steady above the 1.3700 mark through the Asian session on Thursday. A generally positive tone around the equity markets kept the USD bulls on the defensive and remained supportive. Market participants now look forward to a scheduled speech by the Bank of England Deputy Governor Ben Broadbent for a fresh impetus. Apart from this, the ECB policy decision might infuse some cross-driven volatility. Traders will further take cues from second-tier US economic releases – the usual Initial Weekly Jobless Claims and Existing Home Sales data.
Short-term technical outlook
From a technical perspective, the pair earlier this week found some support just ahead of February 2021. The subsequent recovery pushed the pair back above the very important 200-day SMA, though the near-term bias remains tilted in favour of bearish traders. Hence, any further positive move might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly near the 1.3740-50 horizontal support breakpoint. That said, a sustained strength beyond would negate the negative outlook and push the pair back above the 1.3800 mark. The positive momentum could further get extended beyond the 1.3835 intermediate hurdle, towards reclaiming the 1.3900 mark.
Meanwhile, the 1.3700 mark now seems to protect the immediate downside ahead of the 1.3675-70 horizontal zone. This is followed by support near the 1.3625-20 region and the 1.3600 mark. A convincing break below the mentioned levels will be seen as a fresh trigger for bearish traders and set the stage for an extension of the recent downward trajectory. The pair might then accelerate the fall further towards the key 1.3500 psychological mark before eventually dropping to the next relevant support near the 1.3450-30 region.
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