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  • GBP/USD has slid back below 1.3500 in wake of mild pushback against earlier Brexit optimism.
  • But the tone of negotiations remains broadly positive and GBP is still the best G10 performer.

GBP/USD has eased back to the 1.3500 level in the run-up to Wednesday’s FOMC monetary policy announcement (at 19:00GMT), seemingly weighed by a combination of some mild pushback against earlier Brexit optimism that took the cross back to fresh year-to-date highs above 1.3550. Reports of pre-4pm London fix selling might also explain some of the recent downside, but the pair remains fairly well supported above 1.3480 for now and is still the best G10 performer on the day with gains of around 0.2% or 20 pips.

Brexit headline bombardment continues

Another day, another bombardment of Brexit news inducing further rollercoaster-like price action in GBP/USD. Late in Wednesday’s European morning, the pair saw upside after a BBC reporter gave the update that the UK had accepted the idea of “managed divergence” in exchange for preferential access to single market (this implies the UK accepting that it will be at risk of punishment via EU tariffs if it divergences from EU standards). The reporter noted that the mechanism by which to judge whether an unfair advantage exists or not is yet to be agreed upon, but the EU has accepted that it cannot take unilateral action via “lightening tariffs”. Shortly after, the Spectator reported that the UK PM Boris Johnson is sounding a little more upbeat on the prospects that a deal will be reached.

Upbeat Brexit updates saw cable eclipse its previous year-to-date high at 1.3539 and even push beyond the 1.3550 mark, though the gains were short-lived amid some pushback against the morning’s growing optimism from a spokesperson to the UK PM. The spokesperson said that a no deal outcome is still the most likely and, while progress has been made, large gaps remain. Moreover, an RTE reported tweeted that while a landing zone on level playing field/state aid is in sight, both sides still have a very long way to go and talks on fisheries remain very difficult.

GBP/USD supported at the 9 December high

GBP/USD remains well supported having bounced at the 9 December high close to 1.3480. Should this level go, the next key area of support to the downside will be Monday’s high just below 1.3450 and beyond that the 21DMA at 1.3350 and the weekly lows just under the 1.3300 level. Meanwhile, to the upside, the main level of note is Wednesday’s high at just above 1.3550.

GBP/USD four hour chart