GBP/USD clings to strong gains near weekly tops, around mid-1.3400s

• GBP/USD witnessed aggressive short-covering move on Wednesday and rallied to weekly tops.
• The incoming headlines revived hopes for a last-minute Brexit deal and provided a strong boost.
• COVID-19 vaccine optimism/ US stimulus hopes undermined the USD and remained supportive.

The GBP/USD pair added to its strong intraday gains and shot to fresh weekly tops, around the 1.3460-65 region during the mid-European session.

The pair built on this week’s solid rebound from the 1.3225 region, or over two-week lows touched at the beginning of this week and caught some aggressive bids on Wednesday. The strong intraday positive momentum followed comments by the UK Cabinet minister, Michael Gove, saying that there can be scope for compromise on fishing right.

Adding to this, German Chancellor Angela Merkel hinted that the EU will be willing to compromise on the level-playing field. The headlines raised prospects for a Brexit deal and forced investors to unwind their bearish bets ahead of a key summit between UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen.

Apart from some positive developments surrounding the Brexit saga, the emergence of some fresh selling around the US dollar further prompted traders to unwinding their bearish bets. The latest optimism over COVID-19 vaccines and hopes for more US fiscal stimulus boosted investors’ confidence, which, in turn, kept the USD bulls on the defensive.

With Wednesday’s strong move up, the GBP/USD pair has now reversed the losses recorded over the past three trading session and seems poised to aim back to reclaim the key 1.3500 psychological mark. In the absence of any major market-moving economic releases, the incoming Brexit-related headlines will continue to infuse some volatility around the GBP cross.

Technical levels to watch