GBP/USD: Time for a fresh fall? Boris and Trump lift sterling, but both lack backing
Public posturing, quiet backtracking? That seems to be UK Prime Minister Boris Johnson’s tactic in negotiations – and the pound is on the rise.
On Friday, the PM told the nation that it should prepare for a no-trade deal Brexit after EU leaders refused to cede ground nor intensifying talks with Britain. However, Bloomberg is reporting that officials are ready to back down on the controversial Internal Markets Bill (IMB) which knowingly violates the Withdrawal Agreement that Johnson signed last year.
London and Brussels are at odds over state aid and fisheries, with both reporting progress and hurdles. The EU Summit last week was seen as a deadline – but the only genuine “cliff” is December 31, when the transition period ends. Without a deal, the UK would revert to unfavorable World Trade Organization rules.
Is there room to be optimistic about Brexit talks? Perhaps, yet the recent past has shown that the mood around negotiations tends to shift quickly. Moreover, the UK has other issues.
The recovery is at risk due to a sharp increase in COVID-19 cases, compounded by a political crisis. Infections are rising especially quickly in northern England, where long-run grievances of dictates from London have resurfaced. The public is tired of limitations and also disapproves of the government’s handling of the crisis. In turn, that may lead to incompliance and further lengthening the pain for the economy.
Contrary to the spring, Boris Johnson lacks backing and that may further weigh on the economy. Moody’s downgraded the UK’s credit rating over the weekend. While Britain is able to easily borrow in international markets, the move is a reminder of the perilous state of the economy,
Trump looks lonely
President Donald Trump has also contributed to lifting GBP/USD by stating that he wants a larger stimulus package than Democrats. Stocks responded positively and the safe-haven dollar dropped. However, Senate Republicans have taken the opposite direction and back only a “skinny” relief deal.
GOP leaders may be calculating that Trump is about to be crushed in the elections – models are showing around 90% chance for rival Joe Biden to win – and prefer to stick to their principles rather than their leader. Time is running out toward the vote, due in 16 days.
House Speaker Nancy Pelosi and Senate Majority Leader Mitch McConnell are both active but seem to be posturing rather than striving for a compromise. Headlines coming out of Washington are set to move the dollar later on.
Overall, the upbeat mood may fade quickly.
GBP/USD Technical Analysis
Contrary to fundamentals, technicals are looking better. Pound/dollar has surpassed the 50, 100, and 200 Simple Moving Averages on the four-hour , and momentum has turned positive.
Resistance is at 1.3010, which was a low point last week and served as resistance beforehand. Further up, 1.3080 is October’s high and serves as a strong cap. Next, 1.3130 awaits cable.
Some support awaits at 1.2980, which was a swing high in early October. It is followed by 1.2930, where the 100 and 200 SMAs hit the price. Critical support is at the double-bottom of 1.2865 seen twice last week.