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  • DXY heads for the highest close since late-September, still supported by risk aversion.
  • GBP/USD drops below the 20-day moving average for the first time in a month.

The GBP/USD bottomed at 1.2880, the lowest level in almost two weeks and then trimmed losses, rising above 1.2900. As of writing, it trades at 1.2915, down 75 pips for the day, about to post the fifth daily loss out of the last six trading days.

A stronger US dollar is the key driver in the decline of GBP/USD. Risk aversion boosted the demand for the greenback. Economic data from the US came in better-than-expected but offer no extra support to the greenback.

The US Dollar Index climbed above 94.00 to the highest level in almost a month. The outlook now points to further gains in DXY, particular if risk aversion across financial market prevails.

Regarding the pound, Brexit negations continue but with no headlines for the time being. Analysts at CIBC point out that a Brexit deal would likely offer only temporary relief for the pound. They see that the near-term outlook continues to be dominated by late-stage Brexit negotiations, rather than fundamentals. “Should a deal be agreed to, removing the threat of tariffs and quotas, expect a potential GBP relief rally (…) we would not expect any immediate GBP gains to prove durable. Although any free trade deal would obviate the risks of tariffs and quotas, the UK is still set to face the prospect of significant trade frictions, via new customs restrictions.”

From a technical perspective, GPB/USD is about to test a key support band between 1.2840 and 1.2860 that contains many October lows and the 100-day moving average. A rebound to 1.2970 (20-day moving average) should be seen as corrective. A recover above 1.3060 would remove the negative tone and point to more strength.

Technical levels