GBP/USD pressured in a sharp drop, testing bull's commitments around 1.31 the figure

GBP/USD is currently trading around the lows of the day 1.3126 having travelled between a range of 1.3121 and 1.3250, -0.94% at the time of writing. PM Johnson is still using the threat of a no-deal Brexit as a negotiating tactic in the forthcoming trade talks with the EU which means that Brexit remains a driving factor for the pound.

While nothing significant will change day-to-day until the end of 2020, when Britain exits the transition period, markets are waiting to see how trade negotiations start off following a few more Parliamentary stages that are required before the withdrawal bill becomes law, and Britain leaves on January 31.

Markets expect that the 11-month timetable isn't long enough to secure an agreement with Brussels. In the latest updates, we are hearing that the opposition party, Labour,  has put down an amendment to extend the transition unless an agreement on the future trade partnership is done by June 15, 2020, or the Commons votes not to extend it. However, following such a defeat in the elections,  it is highly unlikely Labour will be able to get anything passed through the Commons.

DXY correcting bearish spell, although bearish bias remains while below 97 handle

Meanwhile, the US dollar is bid across the board, correcting six consecutive days of losses. Markets are still thin following the holidays which can make for higher volatility. We have also had the US Markit Manufacturing PMI Dec which arrived at 52.4 (vs the est 52.5 and prior 52.5). The DXY, however, remains below the 200-day moving average as well as the 21-DMA. The index has also pierced below a 23.6% Fibonacci as well as the double bottom low on the 97 handle. At this juncture, the reaction to a Chinese delegation visiting Washington for the trade deal ceremony will likely be the most significant catalyst for the next move one way or another. 

GBP/USD levels

GBP/USD’s outlook is positive, according to analysts at Commerzbank. "At the end of last year it reacted back to and recovered from the 55 day ma at 1.2977 currently. The low on the 23rd December was 1.2908 and while above here we will assume an upside bias to retest the December high at 1.3515."

Very near term the market has halted at a minor 61.8% retracement at 1.3283 and we would allow for a near term retracement towards 1.30 ish. The December high at 1.3515 guards the September 2017 high and 38.2% retracement (of the move down from 2014) at 1.3658/68. This guards the more important 1.3918 2007 -2020 downtrend.