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  • Sterling buyers get a welcome reprieve from Brexit angst as PM May takes over EU negotiations.
  • EU-US trade tensions could spark a return to risk aversion for Wednesday’s trading sessions, which poses a risk to the GBP/USD’s meager recovery.

The GBP/USD is trading into 1.3150 ahead of London’s Wednesday markets, catching a bit of mild lift through the overnight session after recovering from a bottom of 1.3070 in Tuesday’s action.

British Prime Minister Theresa May has taken over Brexit negotiations with the European Union, leaving what’s left of her Brexit cabinet to focus on preparations for the exit in March of 2019, as well as to begin preparing backstop plans in case of a no-deal Brexit scenario. The news comes as a welcome relief for GBP buyers, who have been chained down by fractured negotiations that have been going nowhere for some time as the EU feels little to no compulsion to hand over concessions to hard-line Brexiteers that would leave Europe at a disadvantage.

Wednesday is a thin showing on the economic calendar for both the Sterling and the Dollar, but market sentiment will be on the lookout for further Brexit headlines, as well as developments in the EU-US trade discussions, and risk appetite could quickly sour for Wednesday as the EU prepares retaliatory tariffs against the US, which could cause the GBP to resume sinking as trade tensions return to the forefront.

GBP/USD Levels to watch

The Sterling’s current push to the upside could prove to be short-lived with bears still close by, as noted by FXStreet’s own Haresh Menghani: “from a technical perspective, the ongoing recovery move seems nothing but a corrective bounce within a well-established bearish trend, as depicted by a descending trend-channel formation on the daily chart. Hence, any subsequent up-move beyond the current resistance area, marked by 50% Fibonacci retracement level of the 1.3363-1.2957 recent downfall, could get extended but is likely to be capped near the 1.3200 handle.  

On the flip side, any meaningful retracement is likely to find support near the 1.3110-1.3100 region (38.2% Fibonacci retracement level), which if broken would reinforce the bearish bias and drag the pair towards 1.3050 support area. A follow-through selling has the potential to continue exerting downward pressure back towards the key 1.3000 psychological mark.”