GBP/USD Forecast: Sterling bulls hungry for gains ahead of Brexit dinner

GBP/USD has been edging higher ahead of a critical Brexit summit later in the day.
Britain's compromise on the previous agreement gives hope, yet disagreements remain.
Wednesday's four-hour chart is painting a mixed picture.

Yohay Elam FXStreet

Striking a deal at dinner? That is the hope of sterling bulls as UK Prime Minister Boris Johnson heads to an evening encounter with European Commission President Ursula von der Leyen. The two leaders spoke on the phone several times in recent days but have failed to reach a compromise on the issues remaining to conclude post-Brexit relations – fisheries, governance, and the level-playing field.

Sterling edged up on Tuesday after Britain dropped controversial clauses in the Internal Markets Bill (IMB). The concession allowed both sides to announce a protocol for Northern Ireland – yet that only completes the implementation of the 2019 Withdrawl Agreement – not trade details from 2021 onward.

The transition period expires in 22 days and without a deal, Briain reverts to unfavorable World Trade Organization rules. Michel Barnier, Brussels' Chief Negotiator, said that the chances of a deal are "very slim." If he is right, sterling could dive once dinner is over. On the other hand, the leaders may cede ground and allow for a breakthrough.

As long as Johnson travels to the Belgian capital, there is hope – and that should keep sterling bid.

Outside the neverending Brexit saga, the safe-haven dollar is on the back foot as Republicans and Democrats seem to be inching closer to a fiscal stimulus accord. The GOP seems ready to accept a $900 billion relief package, yet the parties differ on the details. Headlines from Washington are eyed.

The UK is reportedly on course to approve the AstraZeneca/University of Oxford coronavirus vaccine after a peer-reviewed analysis showed it is 70% efficient. The move comes after Britain began administering the Pfizer/BIoNTech jab on Tuesday. The US Food and Drugs Administration is set to give its nod on Thursday.

Worries about the covid's spread in London may weigh on the pound once the Brexit dust settles. Concerns that the capital could enter Tier 3 restrictions are in the air.

All in all, almost all cable's moves hinge on Brexit headlines and most importantly the result of the Brussels dinner summit. Will Johnson and von der Leyen cede enough ground to allow for a virtual handshake? That is the key. There is more risk to the downside if talks collapse, but a deal is far from being fully priced in.

GBP/USD Technical Analysis

Momentum on the four-hour chart is to the downside, but pound/dollar has recaptured the 100 simple Moving Average and is battling the 50 SMA. The Relative Strength Index is stable. All in all, the picture is mixed.

Resistance awaits at the round 1.34 level, which is also the daily high. It is followed by 1.3445, which was a high point in early December. Further above, 1.3495 was a high point in recent days. It is followed by the 2020 top of 1.3539.

Support is at 1.3310, which played a role in both directions in recent weeks. It is closely followed by 1.3295, a swing that was seen on Tuesday. Further down, the weekly low of 1.3225 is eyed.

More Dollar downfall explained and what's next for markets

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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