GBP/USD slips below 1.2400 as upside momentum fizzles amid Brexit woes

GBP/USD eases from 1.2402 to 1.2380 while heading into the London open on Wednesday. In doing so, the Cable defies Tuesday’s upside momentum amid recent news suggesting further challenges to the EU-UK Brexit talks. Other than the updates from Brussels, the coronavirus (COVID-19) news and UK Manufacturing PMI could offer intermediate clues ahead of the busy US session.

While UK PM Johnson’s efforts to combat the worst GDP in 41 years, recently via infrastructure spending, got applauds the previous day. Also supporting the upside moves was the US dollar’s weakness amid risk-on sentiment and the quarter-end adjustments of trading positions. However, the buyers couldn’t stay on board for long as the departure talks between Britain and the European Union (EU) aren’t offering any positive signs. On the contrary, updates suggest the old neighbors might again fail to deliver any trade deal when they bid adieu on December 31, 2020.

Earlier on Wednesday, the City AM came out with the news, quoting the EU Chief Brexit negotiator Michel Barnier, suggesting Britain has not completed necessary equivalence assessments by today’s deadline, marking a blow to the UK’s efforts to determine the City’s access to EU markets after Brexit. Further, the UK Express relies on a leaked document to state fears of a ban onto the British exports to the bloc Union if they don't have the correct clearance from tax authorities. Additionally, a Conservative Member of Parliament (MP) from the UK, Lia Nici, fired shots at the EU while handling the controversial fishing access as no deal will finish off fishing industries of some of the key regional economies, per the UK Express.

Other than the Brexit news, the pair also bears the burden of the US dollar recovery amid escalating tension between the US and China, as well the fears of the virus wave 2.0 based on worrisome figures from America. Furthermore, Financial Times’ news that UK PM Johnson warned by company chiefs of ‘hugely damaging’ no-deal scenario also negatively affected the quote.

Looking forward, a second reading of the UK Manufacturing PMI for June, estimated 50.1 initially, will join the Brexit updates to offer immediate direction to the pair. Though, major attention will be given to the risk catalysts and FOMC minutes for fresh impetus. It should also be noted that the US ADP Employment Change and ISM Manufacturing PMI will also be the key for pair traders to watch during the day.

Technical analysis

The pair’s U-turn from a three-week-old falling trend line highlights 61.8% Fibonacci retracement of May-June upside, at 1.2358 now, followed by Monday’s low near 1.2250. However, a clear break above 1.2410 resistance line could propel the quote to confront the 1.2445/50 area comprising 50% Fibonacci retracement and 21/50-day EMAs.