- A combination of factors prompted some long-unwinding trade around GBP/USD.
- Fading hopes for a last-minute Brexit weighed on the pound and exerted pressure.
- COVID-19 jitters drove haven flows towards the USD and added to the selling bias.
After months of negotiations, Britain and the European Union has not been able to arrive at a post-Brexit agreement. Talks have stalled amid disputes over the key sticking points – the so-called level playing field and fisheries. Against the backdrop, reports that European leaders will demand the European Commission to publish no-deal plans took its toll on the British pound. Having struggled to find acceptance above the 1.3300 round-figure mark, the GBP/USD pair witnessed some long-unwinding trade on Thursday and continued losing ground through the first half of the European trading session.
The pair dropped to the 1.3200 neighbourhood and was further pressured by a goodish pickup in the US dollar demand. Growing market worries about the economic fallout from the imposition of new restrictions tempered the optimism over a potential vaccine for the highly contagious coronavirus disease. This, in turn, dampened the global risk sentiment and drove some haven flows towards the greenback. That said, firming expectations of further monetary easing by the Fed might hold the USD bulls from placing aggressive bets and help limit deeper losses for the major, at least for now.
Investors might also refrain from positioning for any further near-term depreciating move, rather prefer to wait for official Brexit updates. EU negotiators are reportedly due to update envoys of the bloc's 27 member states on the latest in trade talks with Britain on Friday. This, in turn, warrants some caution before positioning for any further depreciating move amid absent relevant market moving economic releases from the UK.
Meanwhile, the US economic docket features the releases of Philly Fed Manufacturing Index and Initial Weekly Jobless Claims. The data, along with the broader market risk sentiment and developments surrounding the coronavirus saga, will influence the USD price dynamics and further produce some meaningful trading opportunities.
Short-term technical outlook
From a technical perspective, the near-term bias still seems tilted in favour of bullish traders and the ongoing pullback might still be categorized as corrective. The positive outlook is further reinforced by the formation of an upward sloping channel, which points to a well-established short-term uptrend. Hence, any subsequent fall below the 1.3200 mark might still be seen as a buying opportunity and remain limited near the 1.3165-60 horizontal support. However, some follow-through selling has the potential to drag the pair further towards last week’s swing lows support, around the 1.3110-05 region.
On the flip side, the 1.3275 level might now act as immediate resistance and is closely followed by the 1.3300 mark. A sustained strength beyond might trigger a short-covering move and push the pair further towards challenging the trend-channel resistance, currently around the 1.3345 region, which if cleared decisively will be seen as a fresh trigger for bullish traders. The pair might then prolong its near-term appreciating move and aim towards reclaiming the 1.3400 round-figure mark. The momentum could further get extended towards YTD tops, around the 1.3480-85 region, en-route the key 1.3500 psychological mark.
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