GBP/USD nurses Friday’s losses under 1.3100 as Brexit woes battle economic optimism

GBP/USD drops to 1.3087 while heading into the London open on Monday. The Cable pair trims early-day gains but keeps the daily range amid a quiet session. Even so, optimism surrounding the economic rebound in Britain confronts US dollar gains as well as Brexit woes as we write. Considering the lack of data/events up for publishing today, the pair traders will keep eyes on the risk catalysts for fresh impetus.

As per the latest update from the Sky news, depending upon the Cabinet Office "reasonable worst-case scenario" document, dated July 2020, emergency plans were drawn up by the government to protect the UK if a second coronavirus (COVID-19) spike coincides with a no-deal Brexit. The news also quotes an anonymous government spokesperson saying it, “reflects a responsible government ensuring we are ready for all eventualities".

With this, fears of the no-deal Brexit gains momentum, also backed by Friday’s failure to reach any agreements by the European Union (EU) and the UK’s policymakers. However, the odds of COVID-19 wave 2.0 declines as the latest counts suggest 1,041 new cases, on Sunday, down from 1,288 on Saturday, as per Reuters.

Elsewhere, Barclaycard Payments’ SME Barometer suggests that the Small and Medium Enterprises (SMEs) gain optimism, though cautiously, with the latest score of 95 at the start of the third quarter. Additionally, the Financial Times (FT) also shared the news relying on the government analysis while suggesting that Britain appears to be on course to enjoy a record-breaking economic recovery in the third quarter, fuelled by consumers who are spending again after the coronavirus lockdown and a planned reopening of schools.

On the other hand, vaccine hopes help S&P 500 Futures to print record high above 3,400 and keep the Asia-Pacific shares on the front foot. Though, the US 10-year Treasury yields drop 1.2 basis points (bps) to 0.628% by the press time. It should also be noted that fears of tropical storms Marco and Laura seem to have largely been ignored.

Looking forward, traders may witness dull session before the US Chicago National Activity Index, prior 4.11. Though, news concerning the pandemic and/or monetary policy hints before this week’s Jackson Hole Symposium will be the key to watch.

Technical analysis

The bearish MACD and a clear break below 100-bar SMA suggest the pair’s weakness. Hence, bears may look for entries below an upward sloping trend line from July 30, at 1.3055 now, before marking their dominance. In doing so, 1.3000 and the monthly bottom around 1.2980 could return to the charts ahead of highlighting 1.2915 and July 28 low near 1.2840. Meanwhile, an upside break of 100-bar SMA, currently around 1.3105, can aim for the early-month top surrounding 1.3185 before confronting March month’s top close to 1.3200.