GBP/USD rallies to fresh weekly highs above 1.3250

GBP is the best performing G10 currency on Tuesday, with GBP/USD currently trading up nearly 70 pips (or 0.5%) on the day, having broken back above the 1.3250 mark for the first time since last Wednesday in earlier trade to set daily highs above 1.3270. For now, Monday high at 1.3240 is acting as support.

GBP buoyed by Brexit deal hopes but awaits evidence of compromise on key sticking points

Brexit updates since the start of Tuesday’s Asia Pacific session give cause for optimism that after over a year of tough negotiations, a trade deal between the EU and UK is on the near-term horizon. Reports during the Asia hours suggested that UK Brexit Negotiator David Frost had told UK PM Boris Johnson to expect a deal as soon as next week, boosting GBP/USD back above 1.3200.

Similar but separate reports during Tuesday’s European morning session from other major news outlets suggested the same thing and gave GBP/USD bulls further impetus, with one source suggesting a deal might even be possible as soon as Friday.

Though price action suggests markets are increasingly betting on the prospect of a deal being reached soon (GBP is Tuesday’s best performing G10 currency), various analysts have urged caution given that there is still no evidence of an agreement on the key sticking points that have so far prevented a deal from coming into fruition. Indeed, UK government officials, perhaps in an effort to temper market expectations, were out this morning saying that significant differences between the two sides still remain.

Until there is clear evidence that considerable compromises have/are being made on the issues of fisheries, state aid and level playing field, GBP is likely to increasingly look at such reports of a deal being very close with skepticism.

GBP/USD approaches key resistance in the 1.3300 region

GBP/USD continues to respect a bullish uptrend that has been in play since the start of the month, linking the 2, 4, 5 and 12 November 2020 lows (at roughly the 1.2850, 1.2910, 1.2950 and 1.3100 levels respectively.

Moreover, looking at the pair over a longer time horizon, GBP/USD looks to be heading back to the upper bounds of a bullish trend channel that has been in play since midway through September. Note; the upper bound of this trend channel links the 16 September, 21 October and 10/11 November highs (at roughly 1.3000, 1.3180 and 1.3275 respectively), while the lower bound of this trend channel links the 23 and 25 September, as well as the late-October/early-November lows (at roughly 1.2700 and 1.2900 respectively).

Thus, the near term-technical picture continues to imply further upside and GBP/USD looks to be eyeing up an imminent test of a significant area of resistance in the 1.3300 psychological level and just above it; just above 1.3300, the upper bound of the above-mentioned trend channel comes into play, as well as the November and 4 September highs at 1.3313 and 1.3320 respectively.

If this area of resistance goes (which would likely be the case if news broke that the UK and EU had managed to finally hash out a deal), there is very little by way of key levels of resistance ahead of the yearly high at 1.3483, which would then become the target.

Should the bears regain control in the near-term, a break below Monday’s high at 1.3243 would be needed in order to reopen the door for a move back towards 1.3200. Around this level, GBP/USD would likely again test the uptrend that has been in play this month, a break below which could signify that momentum is growing for a move towards the lower bounds of the pair’s longer-term upwards trend channel. However, before that, the pair would need to break below its 21 day moving average, which currently resides well below current levels at 1.3075.

GBP/USD four hour chart