GBP/USD losses deepen but dip-buyers keep pair above 1.3300

• Brexit negativity on Wednesday has sent GBP/USD tumbling, though dip-buying kept the pair above 1.3300.
• Hard-line EU countries are said to be pushing for no-deal unless the UK offers more concessions.

GBP/USD losses have extended into Wednesday's US session, although dip-buyers came in to lift the pair off lows in the 1.3280s and back to the 1.3330s in recent trade. As things stand, cable trades with losses of around 80 pips on the day, or 0.6%.

Downbeat Brexit news flow delivers blow to trade deal hopes

As noted, negative headlines on the UK/EU trade deal negotiations front have weighed heavily on cable on Wednesday. The downside began around the time of the EU cash open (08:00GMT) when an EU diplomat said that EU Chief Brexit Negotiator Michelle Barnier told EU envoys that differences still remain on the three key sticking points (a reference to the standout issues of fisheries, state aid and governance) and that a deal “still hangs in the balance”.

GBP/USD dropped from above 1.3400 to below 1.3350 in the subsequent hours, as Tuesday’s optimism about the two sides entering “the tunnel” and hopes for a deal by the end of the week were priced out. The pair then saw an extension of downside around European midday when the Times reported that France and other hard-line countries are pushing for a no-deal Brexit if Britain will not make concessions, hitting lows in the 1.3280s before recovering back above the 1.3300 big figure.

Not all Brexit headlines have been negative thus far on Wednesday; Barnier reportedly told the FT that the UK and EU are exploring a transitional arrangement for fishing rights, with a possible renegotiation and the end of this fishing transition period. The UK and EU fishing industries make up only a very tiny percentage of both economies’ GDPs, thus flexibility in this particular area so as not to scupper the rest of talks is likely to be desirable for both sides.

Meanwhile, an EU diplomat said that several member states are open to continue talks after the 31 December deadline if a good deal cannot be reached by then. As strategists have noted for some time, if a no-deal outcome does end up happening and the EU and UK are forced to trade with each other on WTO terms, the economic upheaval this causes in the short-term is likely to pressure politicians into agreeing to a trade deal, even if that only amounts to a very “bare-bones” deal. In that sense, the economic damage caused by a no-deal Brexit, while large, is unlikely to persist for too long (or so the logic goes).

Elsewhere, confirmation that the UK is set to become the first nation in the world to start administering Covid-19 vaccines did little to help stem GBP downside. The UK confirmed on Wednesday that it had approved the Pfizer/BioNTech vaccine, which will be made available across the UK from next week, with health care workers and care home residents first in line.

GBP/USD bulls return to support pair at 1.3300

GBP bulls returned in force to buy the dip as GBP/USD dropped briefly below 1.3300. Indeed, the area marks a solid area of support that has been in play for more than a week, and there is also a reasonably large 600M in options expiring at 1.3300 at the NY cut.

Thus, cable has now returned to the 1.3300ish-1.3400ish range that persisted for most of the last week (aside from Tuesday’s breakout above 1.3400). A downside break of this range will open the door to a run at last Monday’s low at 1.3264 and possibly the pair’s 21-day moving average at 1.3244.

Conversely, if the bulls continue to regain confidence, the next significant area of resistance to watch will be in the form of resistance at the top of GBP/USD’s range around 1.3400, and then Tuesday’s highs in the 1.3440s above that.