- GBP/USD is again underpinned by Brexit hopes, with reports suggesting the French have accepted lesser access to UK fishing waters.
- GBP/USD gains have stalled at 1.3300, but the short-term technical picture remains bullish.
GBP/USD currently trades just below session highs beneath 1.3300, with the pair holding onto gains of just over 50 pips, or 0.4%, higher on the day.
Expectations for a Brexit deal are growing
Recent GBP strength which has seen GBP/USD lows this week in the 1.3160s to current levels close to 1.3300, has been spurred in large part by growing hopes that the EU and UK will be able to reach an agreement on their future trading relationship in the coming days/weeks.
Reports on Tuesday that a deal could be just days away saw some pushback from No. 10 Downing Street, but nonetheless spurred GBP upside at the time. Furthermore, reports on Wednesday that France may have “accepted” that they will receive less access than at present to the UK fishing waters in the future has also helped to spur upside, given that this acceptance might open the door to a compromise on the negotiating sticking point of fisheries that is more palatable to the UK.
From a market perspective, EU Chief Brexit Negotiator Michelle Barnier’s update to EU ambassadors on Friday will be crucial, with the GBP bulls hoping that Barnier will confirm reports that a deal is close at hand.
Elsewhere, GBP traders are also focused on Bank of England speakers. Speaking on Wednesday morning, the bank’s Chief Economist Andy Haldane noted that though the economy surpassed expectations in Q3 2020, the outlook for Q4 2020 is very uncertain. However, he continued, economic prospects for next year are perhaps materially brighter than expected a few weeks ago, seemingly in reference to recent positive news on the vaccine front.
Looking ahead, BoE Governor Andrew Bailey will be speaking at 16:30GMT as part of a conversation with Congressman Langevin at the Carnegie Institute for World Peace, so his comments are unlikely to be policy-related. Yesterday the BoE Governor said that hailed “encouraging” vaccine news and said it would play a major role in the reduction of uncertainty. Moreover, he said that he now sees some light at the end of the tunnel, but that more financing would be needed to ensure that viable businesses survive.
Wednesday also saw the release of October UK inflation data, which exceeded expectations cross both the core and headlines metrics, but remains well below the Bank of England’s 2% inflation target and thus did not affect GBP too much at the time. Further notable UK data comes out on Friday in the form of October retail sales numbers, although this data is likely to be seen as out of date given the UK went back into lockdown right at the start of November. Moreover, GBP seems more concerned by the theme of Brexit than anything else right now.
GBP/USD continues to respect bullish trendlines as it marches towards 1.3300
GBP/USD gains have not only been capped by the 1.3300 mark on Wednesday, but also by the upper bounds of a bullish trend channel that links the 6 and 9 November lows to the 16, 17 and Wednesday European morning session highs (see the four-hour chart below).
Despite running into resistance in this region on Wednesday, the technical picture remains a bullish one for GBP/USD, with the pair having been continually supported by the lower bounds of a recent bullish trend channel that links the 13,16 and 17 November lows.
Thus, a more aggressive test of 1.3300 in the near future is likely. However, significant resistance resides just above the 1.3300 level; there is the November high at 1.3313 and the 4 September high at 1.3320. Moreover, there is also the upper bound of a longer-term bullish trend channel that links the 16 September, 21 October and 10/11 November highs, which is likely to come into play around 1.3320.
Failure break at this area of resistance could signal a broader decline back towards the lower bounds of GBP/USD longer-term upwards trend channel (see the four-hour chart). However, for a move back towards the low 1.30s comes into fruition, the pair would need to break below shorter-term trendline support levels, including the above-mentioned trendline support linking the 13, 16 and 17 lows, as well as an upwards trendline linking the 2, 4, 5 and 13 November lows.
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