GBP/USD: Boris quietly boosts the bulls, room for more gains? Brexit headlines dominate

• GBP/USD has kicked off the trading week with a gap higher as Brexit talks resume.  
• A new British proposal on the Level-Playing Field topic outweighs downbeat talk by the PM.
• Monday’s four-hour chart is pointing to further gains.

London and Brussels are “very far apart” – according to UK Prime Minister Boris Johnson after agreeing to extend Brexit talks and “go the extra mile.” with the EU. GBP/USD has seemed to focus on the fact that both sides continue negotiations, kicking off the week with a gap and rising by around 1% at the time of writing.

Moreover, while Johnson is publically portraying pessimism – his team laid down a new proposal on the contentious Level-Playing Field topic. The bloc wants some British alignment to EU regulations to secure freer trade while the UK desired looser rules. According to The Times, the two sides have been making progress on tariffs and on the LFP – one of three thorny topics.

Will there be a virtual handshake on an accord? There are 17 days left until the Brexit transition expires – the only genuine deadline. Last year, the EU and the UK announced the Withdrawal Agreement two weeks ahead of the Halloween deadline. If history repeats itself, this last full week before Christmas could be when it happens – yet often history only rhymes.

Both sides are under immense pressure. France threatened to veto an accord that it is not satisfied with last week, and a British group said slashed its growth forecast by half in case of a no-deal Brexit.

While every minor Brexit headline has an outsized impact on the pound, other events are also in play. The US begins its vaccinating campaign on Monday after the Food and Drugs Administration gave its final approval to the Pfizer/BioNTech jab late on Friday. While the move was expected, it adds to positive sentiment and weighs on the dollar.

Coronavirus continues raging in the US, with average daily cases, deaths and hospitalizations hitting new records. In the UK, the situation is stable, yet London – one of the world’s financial capitals – may enter the more restrictive Tier 3 following an increase in infections. That would weigh on sterling.

In Washington, Democrats and Republicans continue working on a stimulus bill. Markets would cheer any accord achieved in the lame-duck session – ahead of President-elect Joe Biden’s inauguration. The Electoral College is on course to ratify its victory on Monday after outgoing President Donald Trump lost another bid to overturn the elections in the Supreme Court.

Later during the week, both the US Federal Reserve and the Bank of England are slated to deliver their final rate decisions of the year, yet no major moves are on the cards.

Overall, Brexit optimism dominates trading, with few sideshows in play.

GBP/USD Technical Analysis

Pound/dollar has pierced through the 50, 100 and 200 Simple Moving Averages on the four-hour chart on its way up – and momentum has turned positive as well. The Relative Strength Index remains well below the 70 level, thus far from overbought conditions.

All in all, bulls are in control.  

Some resistance awaits at 1.34, a level that capped GBP/USD in November. It is followed by 1.3480, a swing high seen last week, and finally by the 2020 peak of 1.3540.

Significant support is only at 1.3230, which was a temporary low early in the month, followed by the December low of 1.3140. The next levels to watch are 1.3105 and 1.3030.