GBP/USD Forecast: Sterling set to shine after correction as Brexit deal merely delayed

Another artificial Brexit deadline missed – is it that shocking? GBP/USD has tumbled from the highs just above 1.33 in response to a report suggesting the November 15 target date is likely to be missed. However, EU and UK negotiators may still seal a deal sometime next week.

Most importantly, the only critical deadline is December 31 – when the transition period expires. While there are open issues, Brussels and London have been able to blur some of their red lines on sensitive topics such as fisheries and state aid.

Prime Minister Boris Johnson's Internal Markets Bill – which may undermine arrangements on the island of Ireland – has still not passed. The PM spoke with US President-elect Joe Biden, and the Good Friday peace agreement in Ireland is one of the points of contention. 

Nevertheless, hopes that an accord is near could boost the pound. 

Another booster comes from an upcoming COVID-19 vaccine. Sterling has outshined the euro in recent days and for good reasons. While the entire world is set to benefit from immunization, Britain is one of the countries best-positioned. Apart from signing an agreement with Pfizer – which together BioNTech announced efficacy of 90% in its preliminary results – its homegrown vaccine project is set for success as well.

AstraZeneca and the University of Oxford are using the same mRNA approach to develop their inoculation and may also publish encouraging results in the next few weeks. Moreover, the UK has a detailed priority plan of who will get the vaccine first. 

Britain is also making some headway in its fight against the second wave of the virus, with the case curve-flattering: 

Source: FT

As the chart above shows, the situation in the US is worsening. Deaths and hospitalizations are also on the rise, with the latter hitting an all-time high. A rush to the safety of the US dollar could ensue but has yet to come. 

Americans are still watching the elections. President Donald Trump has is unlikely to concede his defeat despite failing to provide evidence of his fraud claims. Final tallies from various states are due out in the next few days. 

GBP/USD Technical Analysis

Pound/dollar continues benefiting from upside momentum on the four-hour chart but the Relative Strength Index is around 70 – touching overbought conditions. This setup suggests a potential struggle a more cautious move to the upside. 

Resistance is at the new high of 1.3310, followed by 1.3360 and 1.3420, levels last seen in the summer. 

Support is at the daily low of 1.3240, followed by 1.3205, which was a temporary cap on Monday, and followed by 1.3125.