- GBP/USD has been advancing to the highest levels in a month amid hopes for a Brexit deal.
- US protests are grabbing the headlines and there are various ways it could affect the dollar.
- Tuesday's four-hour chart is pointing to mild overbought conditions.
Who will blink first? That seems to be the name of the game in EU-UK negotiations, and a breakthrough seems closer than last week – pushing the pound higher. According to The Times, Britain is ready to compromise on both fisheries – a small yet politically significant industry – and broader trade relations. The report suggests London is ready to compromise if Brussels does as well.
The change of tone comes amid the deadline to extend the transition period beyond year-end – something that Prime Minister Boris Johnson refused to do. Without an accord, Britain will default to World Trade Organization rules in 2021.
Apart from these hopes, investors are also cheering on the drop in coronavirus statistics. The UK reported only 111 deaths on Sunday, the lowest number in months. This would enable a quicker return to normal, boosting the economy.
However, it is essential to note that figures tend to fall over the weekend and catch up during the workweek. Figures for Monday are due out later in the day.
After a week that saw traders focusing on demonstrations in Hong Kong, the spotlight moved from the former British colony to the US. Demonstrations over the murder of George Floyd, an unarmed black man at the hands of the police, continue raging across America, with some including violence and looting. Several governors have called in the National Guard while New York and other large cities have imposed nighttime curfews.
President Donald Trump threatened to bring in the military and reports suggest that martial law is also on the cards. Markets continued rising amid hopes for reopening and amid massive support from the Federal Reserve. Will these events spook investors?
The protests have prompted Republicans and Democrats to accelerate talks on additional fiscal stimulus, encouraging markets. On the other hand, COVID-19 is far from being under control in the US, and massive demonstrations may trigger more infections, eventually halting the reopening.
Several data points such as UK mortgage approvals and US vehicle sales are scheduled, yet more significant releases await markets on Wednesday – ADP's jobs report and ISM Non-Manufacturing Purchasing Managers' Index. The Manufacturing PMI came out at 43.1, marginally below expectations. It serves as a hint toward Friday's all-important Non-Farm Payrolls statistics.
GBP/USD Technical Analysis
The Relative Strength Index on the four-hour chart is just around 70 – entering overbought conditions. That suggests a correction may be on the cards. Momentum remains to the upside GBP/USD is trading above the 50, 100, and 200 Simple Moving Averages.
Some resistance awaits at the daily high of 1.2555, followed only by 1.2645, the all-important double-top. Further above, 1.2730 is the next level to watch.
Support awaits at 1.2520, a swing high from April, followed by 1.2475, which is the daily low. The next levels to watch are 1.2395 and 1.2340.
GBP/USD Forecast: New month, new falls? Brexit, Non-Farm Payrolls, and coronavirus stats are key
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