- GBP/USD has fallen off the highs as EU and UK negotiators clash on a Brexit deal.
- Vaccine hopes political calm are weighing on the dollar.
- Monday’s four-hour chart is painting a mixed picture.
“Confident we will prosper without EU trade deal” – Prime Minister Boris Johnson has shown that he can move markets even when he is in isolation, sending the pound down. Johnson is confined after being in close contact with an MP who later tested positive for the virus. The PM is feeling well and even upbeat, as his feisty statement shows.
Brexit talks are reaching yet another crunch moment, as negotiators are trying to strike a deal before Thursday’s EU leaders videoconference. Both sides remain at odds over fisheries, governance, and a level playing field I rule related to state aid.
Hopes were higher due to two factors. First, US President-elect Joe Biden signaled that he would not sign a trade deal with the UK if it violates the Good Friday Agreement that secured peace in Ireland. The second reason for hope was that Dominic Cummings, the powerful adviser at 10 Downing Street, left his post. Cummings is considered the architect of the “Vote Leave” campaign and the copyrighter of the “Take Back Control” slogan.
These arguments – as well as pressure from British business – still provide hope for a deal. Johnson’s recent statement seems to be posturing ahead of a potential compromise.
On the other side of the GBP/USD equation, the safe-haven dollar has been slipping amid hopes for a coronavirus vaccine after Pfizer and BioNTech announced 90% efficacy in their immunization candidate, at least according to the preliminary results. Moderna, another American firm, may publish results this week and is also using the mRNA technology applied by Pfizer. Britain’s AstraZeneca is also conducting a Phase 3 trial.
On the political front, President Donald Trump has been unsuccessful in mounting a legal challenge to the election results, and momentarily seemed to recognize his loss. While he later states that he did not concede, the flow of Republican politicians calling on him to allow for a smooth transition is growing.
With the elections looking more settled, investors find comfort in Biden’s intention to refrain from a nationwide lockdown despite rising coronavirus cases. The new administration will likely provide guidance, but leave decisions to governors.
Overall, there are reasons to be bullish on GBP/USD, and all that is needed is a positive Brexit headline to spark the next move higher.
GBP/USD Technical Analysis
Pound/dollar continues trading above the 50, 100, and 200 Simple Moving Averages on the four-hour chart, but momentum remains to the downside.
Support awaits at 1.3160, which is where the 50 SMA hits the price. It is followed by 1.3105, which was a low point last week, and then by 1.3065.
Resistance is at 1.3210, a swing high from last week, followed by 1.3245, the daily high. Next up, 1.3275 and 1.3310 await GBP/USD.
See What you need to know about the dollar in the post-vaccine announcement world
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