- GBP/USD has been advancing amid the EU deal and moderation in US coronavirus cases, and UK vaccine hopes.
- A brewing political scandal and Brexit uncertainty may limit gains.
- Tuesday’s four-hour chart is showing room for further gains after breaking above the triple top.
Pay rise – around 900,000 British public sector workers in education and health will receive a boost to their salaries. The increases are minor, around 3% on average, but the pound has other reasons to rise.
The University of Oxford and AstraZeneca announced that the Phase 1/2 trial of a COVID-19 vaccine candidate proved safe and effective, providing hope for administering immunization to Brits and others within a year.
The Lancet, which published the results, hailed the British achievement and also criticized the government’s plan to hoard the vaccines. For investors, the potential for more rapid deployment of a vaccine to Brits is a boost to the pound. One UK paper splashed “Vaccine by Christmas” on its front page.
Other efforts – most notably by BioNTech/Pfizer, Moderna, and CanSinoBIO are also making progress and lifting the broader market mood, pushing the safe-haven dollar down. Investors are also encouraged by moderation in US coronavirus statistics – around 60,000 cases and 500 deaths reported on Monday – which were below the peak. While most are aware that figures related to the weekend tend to be low, the upbeat mood prevails. Updated figures are due out in the US session.
Another reason for markets’ cheering is the EU deal – not on Brexit, but on a recovery fund. After five months of crisis and nearly five days of exhausting talks, leaders in the old continent found a compromise. The bloc will deploy some €750 billion in funds and higher demand from the continent could also help the UK.
See EU Deal Analysis: EUR/USD buy opportunity? Why the move is historic and should keep the euro bid
Brexit talks remain deadlocked – yet no progress is expected until the fall, closer to when the transition period expires at the end of the year. Sterling is shrugging off the saga.
The pound may be in peril when Britain later releases a report on Russian meddling in UK politics. Prime Minister Boris Johnson’s Conservatives have ties to donors originating from Vladimir Putin’s country. Any suspicion of influence – especially in the 2016 EU Referendum – would hinder the ability of the government to act and potentially weigh on sterling.
Another factor that may weigh on the pound also comes from abroad – tensions with China have deteriorated after the UK canceled its extradition treaty with Hong Kong. China vowed to retaliate on this topic and also in response to Britain’s decision to phase out Hauwei technology.
Overall, GBP/USD has reasons to rise, but the road ahead may be bumpy.
GBP/USD Technical Analysis
Pound/dollar has broken above the triple top at 1.2670, a stubborn cap that held cable down three times. At the time of writing, the currency pair is battling the 1.2690, a swing high which was seen in mid-June. The next caps are 1.2730 and 1.2750, stepping stones on the way up. The big prize is 1.2815, June’s peak.
That trounced triple-top of 1.2670 now turns into support, and it is followed by 1.2625, a high point last week. Next, 1.2570 served as support last week and it is followed by 1.2730, where the 200 Simple Moving Average hits the price.
GBP/USD is trading well above the uptrend support line which has accompanied it since early July and benefits from upside momentum. The Relative Strength Index is rising but remains below 70 – outside overbought territory. Another move up may already trigger profit-taking.
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