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  • GBP/USD built on its bullish weekly gap opening amid renewed hopes for a Brexit deal.
  • The upbeat market mood undermined the safe-haven USD and remained supportive.

The GBP/USD pair maintained its strong bid tone through the first half of the European session, with bulls now looking to build on the strength beyond the 1.3400 mark.

Having found some support near 50-day SMA, around the 1.3135 region on Friday, the pair opened with a bullish gap on the first day of a new week after the UK and the EU agreed to extend Brexit talks. The decision to continue trade negotiations beyond Sunday’s deadline raised expectations for a free trade agreement before the end of Brexit transition period on December 31.

The buying surrounding the British pound picked up pace after the EU’s chief Brexit negotiator, Michel Barnier added to the optimism and said that they will give every chance to reach a post-Brexit trade deal. This, along with the prevalent US dollar selling bias, provided an additional boost to the GBP/USD pair and remained supportive of the strong intraday positive move.

The optimism over the rollout of vaccines for the highly contagious coronavirus disease now seemed to have raised expectations for a swift global economic recovery and continued boosting investors’ sentiment. This, along with hopes for additional US fiscal stimulus measures, weighed heavily on the safe-haven greenback and dragged it to fresh two-and-half-year lows on Monday.

Meanwhile, Barnier further added that there has been limited progress in UK trade negotiations on enforcement mechanisms and disagreement on State Aid. Moreover, the UK and the EU have repeatedly failed to narrow their differences on key issues might. This might hold bullish traders from placing aggressive bets and keep a lid on any further gains for the GBP/USD pair.

There isn’t any major market-moving economic data due for release on Monday, either from the UK or the US. Hence, Brexit developments should continue to play a dominant role in driving the sentiment surrounding the sterling. Apart from this, the US fiscal stimulus headlines might influence the USD price dynamics and produce some trading opportunities around the GBP/USD pair.

Technical levels to watch