GBP/USD: The next stop is 1.36

GBP/USD has been rising amid growing optimism for a Brexit deal. The trend is undoubted to the upside, yet a short-term correction cannot be ruled out. Brexit is set to continue dominating sterling’s trading, overwhelming other developments such as central bank action on both sides of the pond, FXStreet’s Analyst Yohay Elam briefs.

Key quotes

“EU and UK negotiators remain quiet – a positive sign of progress – and also offer fewer leaks from the talks. The picture that is emerging is of substantial progress on the thorny Level-Playing Field. The focus is now on fisheries. Both sides have the interest to strike a deal – but may put up one last fight for their domestic audiences before reaching an agreement. Such a last-minute row could hit sterling and serve as a buying opportunity. Any headline is set to rock the pound.”

“The Bank of England is projected to leave its policies unchanged in its last meeting of 2020 after boosting the bond-buying scheme by £150 billion in November. As long as it refrains from hinting at setting negative rates, the ‘Old Lady’ is likely to provide a dose of support to sterling.” 

“The US Federal Reserve concluded the year without any policy changes but with a new commitment to continue Quantitative Easing until ‘substantial progress’ is seen. The pledge joins its signal to leave interest rates at zero through 2023. Markets were initially disappointed with the lack of imminent stimulus but were encouraged by Chairman Jerome Powell’s overall dovish message.”

“Lawmakers on Capitol Hill have expressed optimism on agreeing on a relief package which President-elect Joe Biden described as a ‘down payment’ ahead of additional spending under his rein. Talks could result in an accord as early as Thursday.”

“The Relative Strength Index on the 4-hour chart is flirting with 70 – entering overbought conditions. While a Brexit deal would make the RSI obsolete, a short-term correction is on the cards. Momentum remains to the upside and GBP/USD holds above the 50, 100 and 200 Simple Moving Averages. All in all, any correction would allow for further gains.”

The fresh 2020 peak of 1.3573 is the first resistance line to watch. It is followed by the round 1.36 and then by 1.3730, a critical level from 2018. Some support awaits at 1.3540, the previous yearly peak, followed by 1.3475 and 1.34, both resistance lines on the way up.”