GBP/USD stalls below 1.2400, opens prospects for a classic Fib retracement

Despite the news that the UK is set to reimpose Leicester under lockdown following a breakout of COVID-19, cable has managed to rally to a high of 1.2395 and move into the Wall Street close and early Asia higher by 0.8%.

GBP/USD is embarking on a test of key supply territory which limits the potential of much ground being made in the 1.24 level for the time being. 

Bears could be inclined to be setting their targets to the downside at this juncture, especially considering the ramifications of a second wave of COVID-19 in the UK as well as fresh rounds of Brexit talks.

Brexit talks will be face-to-face this time around which means the heat will be especially high around these negotiations while there are still little signs of a long-awaited breakthrough.

A "Rooseveltian New Deal"

Prime Minister Boris Johnson, drawing on US President Franklin D. Roosevelt's New Deal program of the 1930s, has pledged to take a 'scythe through red tape' to get projects built and create thousands of jobs.

British Prime Minister Boris Johnson has announced a "Rooseveltian New Deal" to relaunch the country's economy with a massive government spending program.

Eager to get the country beyond the pandemic and the growing public anger over his government's handling of the outbreak, he spared little rhetorical flourish in outlining plans to spend more than £5-billion ($8.4-billion) to build schools, homes, hospitals, roads and rail link today.

"It sounds like a New Deal," he said, "and all I can say is that, if so, then that is how it is meant to sound and to be because that is what the times demand."

"It's the right time to borrow," he said. "We face a real crisis and we have to deal with it. But we're going to deal with it in the most energetic possible way."

US second wave could cripple the USD

Meanwhile, Federal Reserve Chairman Powell and Treasury Secretary Mnuchin spoke about how to recover the economy at a House Financial Services Committee hearing.

• Powell speech: Second coronavirus wave could force people to withdraw from economic activity

A second outbreak of the coronavirus could force governments and people to withdraw from the economic activity, Jerome Powell, Chairman of the Federal Reserve System, said.

"The path of the economy is highly uncertain," Powell added while testifying.

The question everyone is now asking is whether investors will start to identify the second wave as a problem unique to the US.

• DXY: Bears looking to bearish wedge breakout, encouraged by COVID-19 second wave

A sell-off on Wall Street has, to date, supported the dollar, however, if the COVID-19  problem is indeed unique to the US, it will perhaps mean that the greenback will not receive the typical boost on bad US news? 

GBP/USD technical outlook

From a technical perspective, above 1.2417 and prior resistance, the pair will likely rise further towards 1.2450s. However, it could be a slow grind at this juncture to the downside and long term play from a retracement of the day's rally. 

A pullback to a 38.2% Fibonacci in the 1.2340s could be a healthier outcome for the bulls targeting higher prospects.

Below the 38.2% lies the 61.8% and confluence of the prior highs.