GBP/USD bulls lapping up US dollar weakness to a 38.2% Fibo target

GBP/USD is trading between a range of 1.3102 and 1.3121 in a correction of the sharp reversal of the start of the month's rally from the low 1.29 handle some 600 pips higher to the 1.35 handle. 

Of course, Brexit sentiment has been the catalyst in the moves, although during the holidays there has been nothing to trade on and moves across the board have been somewhat erratic. The prior news that PM Boris Johnson was seeking to exit the transition period by the end of 2020 raised prospects of a hard Brexit yet again, which made for an almighty sell-off in the pound. 

Since then, following a period of consolidation in the pound, the US dollar has been on the back foot in more recent days throughout the holidays which has enabled the cable to claw back some of the lost ground since the sell-off to the 38.2% Fibonacci retracement of the move to current spot prices. The US dollar bulls have started to capitulate below the 200-day moving average in the DXY but, at least on a technical basis, support is seen here which should alleviate some upside pressure in cable. 

Holiday ebbs and flows to morph over to risk-off? 

Its holiday ebbs and flows during this time, but it will soon b back to usual business when full markets come back online in the New Year and both US/Sino trade and UK/EU negotiation noise will be the drivers initially. We could see some cautious positioning into safer havens to start the year off, (sell the fact following phase one signing ceremony), which likely means paring back in global equities, including the FTSE. 

Whether there will be correlating in the pound and FTSE is yet to be seen, but an inverse relationship could be supportive of a bid in cable, especially on sentiment such as today's headlines that PM Johnson will not commit to his prior promises of exiting the transition period so abruptly should a satisfactory soft -Brexit deal not have been secured.  Phil Hogan, nominated as the EU trade commissioner last month has argued that Johnson will renege on his legal commitment to exit the Brexit transition period by the end of 2020.

"In the past, we saw the way the prime minister promised to die in the ditch rather than extend the deadline for Brexit, only for him to do just that. I don't believe prime minister Johnson will die in the ditch over the timeline for the future relationship either."

GBP/USD levels