GBP/USD attempts to base and targets tests of 1.34 area

• Brexit headlines dominate the outlook for the pound.
• GBP/USD vulnerable to fading as dollar attempts to correct.

GBP/USD is currently trading at 1.3370, flat on the day travelling between a low of 1.3289 and a high of 1.3393 as the US dollar attempts a correction and Brexit dominates.

The British pound erased the losses from the start of the day and briefly popped into positive territory in a volatile trading session for New York.

Positive news in Britain saying it had clinched a deal with the European Union over how to manage the Northern Ireland border.

Michael Gove made an announcement that the UK would drop clauses in the draft domestic legislation that breached the Brexit Withdrawal Agreement.

This news comes on the back of positive developments in there being an “agreement in principle” between the UK and EU over a sticky negotiating point which removes a significant point of contention between Britain and the EU.

UK’s PM Boris ”Johnson has warned a Brexit deal may not be achieved and a no-deal Brexit is expected to wipe out about 2% from the UK economy in 2021,” analysts at ANZ Bank said.

The market remains on high alert.

DXY correcting to a 38.2% Fibo

Meanwhile, the greenback is attempting to correct:

In the daily chart above, the greenback has made a 2.5 year low from where it is correcting from in a steady fashion towards a full test of a 38.2% Fibonacci retracement of the latest bearish impulse.

There is still room to go on a positioning basis according to analysts at Rabobank when considering net shorts still remain well below that reached in September.

Despite the positive vaccine news and the perception that the Fed will lean on the yield curve if necessary, it is possible that risk appetite could be kept in check by the realisation that economic data are likely to worsen before they improve,” the analysts at Rabobank argued, adding:

”More positive news on a US fiscal stimulus bill could boost risk appetite this week.’

GBP/USD technical picture

However, the current correction in the greenback leaves the pound vulnerable on rallies to fading on test of the 1.34 area.