GBP/USD recovers to 1.2630 amid fresh hopes of a Brexit deal

• GBP/USD rises on renewed Brexit optimism.
• “Cautious optimism” in Brussels and London marked a shift from Barnier’s downbeat comments.
• UK PM Johnson rolls up the sleeves to get the deal as the EU summit comes closer.

With the Daily Telegraph releasing reports of the potential solution to Northern Irish border problem, GBP/USD rises to 1.2630 at the start of Tuesday’s Asian session.

In a marked shift from the European Union’s (EU) chief Brexit negotiator Michel Barnier’s downbeat comments, the Daily Telegraph recently released a news report saying that sources in Brussels and London  turn “cautiously optimistic” about the Brexit deal as they’re nearing a potential solution to the Northern Irish border problem.

Leaders at the EU and the United Kingdom (UK) have been struggling over the Irish backstop for years and news of a potential solution offers a boost to the odds of a Brexit deal, which in turn helps the GBP/USD to recover earlier losses based on doubt of any such agreements.

Although no official confirmation of the news has been received, the UK Prime Minister’s (PM) cancellation of Tuesday’s Cabinet meeting, in order to avoid leaks of delicate talks, flashes positive signals to the developments.

It should, however, be noted that the UK has very little time before October 17-18 EU summit and Irish officials are also downbeat of any Brexit solutions. This might be the case for TD Securities to say, “We remain cautious here and think the FX market has gotten a little ahead of itself. We note cable has shed all of its recent risk premium and now screens a touch rich on our valuation framework. We think this leaves GBP vulnerable to a significant correction back toward 1.22 if market optimism reverses once again.”

While Brexit news will be the key drives, the UK job reports will also be important catalyst to watch for the day.

Technical Analysis

200-day Simple Moving Average (SMA) level of 1.2715 continues to act like a tough nut to crack for buyers that holds the key to pair’s run-up towards June month top surrounding 1.2785. On the downside break below September high nearing 1.2580 could recall sub-1.2500 area on the chart.