Daily Market Recap - GBPUSD

The British Pound is trading lower against the US Dollar on Monday as Sterling buyers appear to be few and far between at the start of the week. Questions over the ramifications of the Brexit trade deal reached last Thursday and the alarming increase of covid-19 cases in the UK have placed the Pound under pressure with the cable down 0.67 percent at the time of writing.

The GBPUSD has ended up moving mostly sideways since the announcement of the trade deal between the UK and EU just 7 days before the end of the transition period. Pound bulls have been left disappointed with the result as traders appear to be weighing the outlook of the UK post-Brexit as uncertainties resurface. The mood has turned more towards a “sell the fact” dynamic than overwhelming cheer for the outcome.

Policy analysts close to the trade deal have pointed out that numerous issues remain present despite the positive conclusion to the negotiations. The point on fisheries has been pushed back to a later date with quotas on EU fishing rights to be evaluated within the next 5 years. The agreement reached last week merely avoided a cliff-edge scenario and we are far from full frictionless trade between the EU and UK.

Meanwhile, the UK has recorded its highest number for daily covid-19 infections across the country on Monday. The alarming rate of propagation is likely due to the new strain of covid-19 detected last week. The overall picture does seem stark despite the start of a large-scale vaccination campaign which has already jabbed over 700k people. The threat of further restrictions and lockdown measures is weighing heavily on the near-term economic prospects of the UK, in turn decreasing risk appetite on the GBPUSD.

From a technical perspective, momentum on the cable is edging in favor of the sellers as the main trend suggests. A bearish cross has formed on the daily chart indicating further downside can be expected. The next point of interest will be the trader‘s reaction to the 20-day moving average just above the 0.236 Fibonacci retracement level around 1.34. A move below would open the door for a push towards the 1.33438 support level and further ahead, last weeks’ low of 1.31877.

(Chart Source: Tradingview 28.12.2020)

On the flip side, failure to break firmly below the 20-day MA could secure further sideways movement in the pair, potentially trading within the 1.36 to 1.34 range in the near term. Traders should watch out however during holiday seasons as large players may seek to take advantage of the little liquidity available and swing the market in their favor.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.