GBP/USD struggles to recapture $1.4000 as soft Brexit hopes fade

The GBP/USD is trading just below $1.4000, after having reached a high of $.14005, that did not last for too long. Earlier, the pair made a sharp drop to $1.3905, in a move that was not related to any news. Speculation of a fat finger, a mistaken sell order, swirled. The pair quickly bounced off the lows and stabilized on higher ground.

The UK Government announced that it is aiming for a close relationship with the European Union, one that would facilitate trading that would be as frictionless as possible. The leaning towards a softer version of Brexit still keeps the UK out of the Single Market and the Customs Union. The decision came after the cabinet convened for a long dinner and may not be satisfactory for the EU. The initial enthusiasm faded. 

BOE member David Ramsden spoke earlier and focused on low productivity growth as an issue for the British economy. The topic has been floating in official BOE communications for quite a while. He did not touch directly on monetary policy.

In the US, the Federal Reserve published the Monetary Policy Report, a semi-annual document that precedes the testimony by the Fed Chair. Jerome Powell, the new Chair, will make his first testimony next week.

The report stressed that rate hikes will be gradual, providing some relief for stock markets and allowing yields to fall. Lower yields have pushed the dollar slightly lower.

GBP/USD Technical picture

The pair is trading in a narrowing triangle around the $1.4000 level. Immediate support is at $1.3870, the low seen earlier this week, followed by $1.3770. $1.4000 serves as immediate resistance, followed by $1.4140 and $1.4250. All the lines served as support or resistance in the recent past. Further off, $1.4340 was the highest level since 2016 and the $1.3620 level is a major level of support below.