GBP/USD: 1.4050 is key on this Brexit noise spike, if not, where next?

Supported by reports suggesting that the UK and EU have agreed on the terms of Brexit transition period, GBP/USD has made an impressive extension above the previous descending resistance line and is making its mark in the 1.40 handle.  Currently, GBP/USD is trading at 1.4034, up 0.64% on the day, having posted a daily high at 1.4090 and low at 1.3913.

Bullish on Brexit noise

GBP/USD pierced the descending resistance on the 12th March and had been making lower highs below the 1.40 handle since then, making early signs of the technical case for a reversal until the start of this week's positive Brexit noise. 

"An agreement will remove a significant uncertainty for British businesses as the UK’s formal break from the EU is due to occur in around a year’s time. An EU summit later this week will likely discuss the transition deal. If Brexit terms can be formally agreed – issues like the Irish border arrangement may still prove tricky – sterling gains should extend somewhat," explained analysts at Scotiabank.

Key events ahead this week?

For the week ahead, we have the BoE and EU summit as well as the FOMC meeting where it is widely expected that we will see an additional incremental 25bp hike. As far as the BoE goes, analysts at Rabobank explained,  "although steady policy is widely expected from the BoE this week, the market will be looking for clues as to the MPC’s position ahead of the forthcoming policy meeting in May.  As it stands, the market see a strong chance of a 25 bps rate rise in May, though the MPC is assuming that wage inflation picks up."

GBP/USD levels

The pound was consolidating just above the descending resistance that comes as a support on dips within the reversal from 1.3711 recent lows, (Feb 28th).  With this bullish spike,1.4150 would be confirming a further possibility towards the 1.42 handle where the 200-week moving average is located at 1.4288. Should the bearish trend resume within the rising channel, however, a deeper support comes in at 1.3890/06, (21-D SMA) and lower, 1.3840. The Feb 9th low is at 1.3765 and that guards the 1.3658 September peak and the 1.3479 2016-2018.