GBP/USD clings to modest gains near 1.3075 region, lacks follow-through

• GBP/USD regains some traction on Friday amid the latest optimism over Brexit talks.
• A modest USD rebound kept a lid on any strong gains for the major, at least for now.
• Signs of the US economic recovery, deteriorating risk sentiment underpinned the USD.

The GBP/USD pair traded with a mild positive bias through the early European session, albeit lacked any strong follow-through and remained below the 1.3100 round-figure mark.

Following the previous day’s pullback of around 60 pips from the vicinity of weekly tops, the pair regained traction on Friday and was being supported by improving sentiment on Brexit trade talks. Despite the fact that the EU and the UK remain far apart on a number of crucial issues, Britain’s chief negotiator David Frost said on Thursday that a Brexit agreement can be reached in September.

Ahead of the next round of talks about the future relationship, set to commence in Brussels on August 18, the comments suggested that the two sides remain committed to reaching a deal. This, in turn, underpinned the sterling and remained supportive, albeit a goodish intraday US dollar rebound kept a lid on any strong gains for the GBP/USD pair, at least for the time being.

Emerging signs of the US economic recovery, coupled with expectations that the US lawmakers will eventually reach a deal on the additional fiscal stimulus measures extended some support to the greenback. This coupled with a turnaround in the global risk sentiment – as depicted by a sharp fall in the equity markets – further benefitted the USD’s relative safe-haven status.

Meanwhile, the pair’s inability to capitalize on the uptick and repeated failures to find acceptance above the 1.3100 mark warrant some caution for bullish traders. Hence, it will be prudent to wait for some strong follow-through buying before positioning for any further near-term appreciating move.

Market participants now look forward to the US economic docket, highlighting the release of monthly Retail Sales and Michigan Consumer Sentiment Index for August. The data might influence the USD price dynamics and produce some short-term trading opportunities later during the early North American session.

Technical levels to watch