GBP/USD shrugs off virus, Brexit woes to retrace heaviest drop in 12 days
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GBP/USD shrugs off virus, Brexit woes to retrace heaviest drop in 12 days

  • GBP/USD attacks the upper end of 1.2870-90 trading range established near the weekly bottom.
  • Rumors over EU’s intentional stretching of Brexit talks, looming concerns over national lockdown weigh the cable.
  • Risk reset, amid fresh hopes of US stimulus, triggered the latest pullback.
  • UK’s Raab propels Beijing-London tussle while asking favors for China’s Uighur Muslims.

GBP/USD treads water around 1.2880/85 while heading into Wednesday’s London open. The Pound major slumped below 1.2900 the previous day, marking the biggest losses since September 21, as global markets turned risk-off after US President Trump stopped the coronavirus (COVID-19) stimulus talks. Also adding to the pair’s weakness were fears of the UK’s national lockdown and a prolonged delay in the Brexit talks. Though, the recent clues from Trump, suggesting intermediate relief to America’s small business and airlines, triggered the GBP/USD pullback from 1.2870.

Having rejected the Democratic demand for over $2.0 trillion aid package, US President Trump showed readiness to approve $25 billion for Airline Payroll Support and $135 billion for the Paycheck Protection Program for small businesses. The move renewed the market’s risk sentiment and trimmed the US dollar’s safe-haven bids.

The developments defy COVID-19 worries over the surge in northern England and fears of further upside in the American death toll due to the pandemic. Further, news that the European states push for a hardliner in fisheries and knowingly delay the negotiations offer extra worries for the GBP buyers as the two-week-long Brexit discussions are on in London. Additionally, UK’s foreign secretary Dominic Raab harshly criticized Beijing’s action against the minority group while terming them as “serious and egregious human rights violations”.  The diplomat was considering telling Prince William not to attend the upcoming Winter Olympics in Beijing, due to be held in 2022, on the government’s behalf, as per news.

On the contrary, risk reversals, which measure the ratio of pound calls over puts, as mentioned by the Bloomberg, has been halved from a month ago when investors were the most bearish on sterling in six months.

Against this backdrop, S&P 500 Futures print mild gains with the mixed performance of stocks in Asia-Pacific.

Considering the lack of major data/events, GBP/USD traders will keep eyes on the risk catalysts ahead of the US FOMC minutes. Among them, Brexit news and any updates on the US stimulus will be the key, not to forget Trump’s health recovery.

Technical analysis

With the normal RSI conditions favoring further recovery in the GBP/USD prices from the key support, bulls may ignore fundamental, if not major ones, to aim for 1.2955/60 resistance area before targeting the 1.3000 threshold and the crucial horizontal resistance near 1.3015. Alternatively, the pair’s downside past-1.2865 may take a rest near the early September lows surrounding 1.2760 before highlighting the 200-day SMA and 61.8% of Fibonacci retracement close to 1.2720/15.


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