Daily Market Recap - GBPUSD Weekly Recap

The British Pound crossed back above the psychologically significant $1.40 threshold on Friday, galvanized since the beginning of the year by a rapid vaccination campaign in the UK and by the conclusion of a post-Brexit trade agreement with the EU at the end of 2020.

After touching a high of $1.40361 per pound around at the end of last week, a level not reached against the greenback since late April 2018, the GBPUSD closed at 1.39989. The pairs total return over the first two months of the year is standing at around 2.5 per cent. Looking since December 24 and the conclusion of a trade agreement in extremis, the pound has appreciated by 3.7% against the dollar and 4.1% against the euro.

“There was no information on Friday to explain the pound's outperformance, but the themes remain the same since the beginning of the year: no extreme consequences of Brexit, high-speed vaccinations and satisfactory growth by the end of 2020,” said Stephen Innes, analyst at Axi.

That said the UK is also the most bereaved in Europe by the Covid-19 pandemic, and the British variant pushed the authorities to begin a long containment of England at the end of the year which has led to conflicting data being published for the month of January. We saw a larger degradation in retail sales in January month over month, though recent manufacturing and services PMI beat expectations for February.

This stimulus and seemingly smooth Brexit outcome has created an explosive cocktail for the British economy and have effectively held back the Bank of England (BoE) from adopting a negative policy rate, a first in UK history, which would have weighed on the Pound Sterling.

But since then, that prospect has receded. While the dollar, on the contrary, is suffering from the possibility of a return of inflation in the United States, the pound is gradually approaching its April 2018 high of $1.4377 per pound.

“This is an important threshold because it is its highest level since the Brexit” referendum of 2016, which led to a plunge of the British currency, recalls Lee Hardman, analyst at MUFG.

For Joe Manimbo of Western Union, the dollar's slide at the end of the week after higher than expected jobless claims in the United States “also gave strength to the euro and the pound, which broke through the ceiling”.

Traders should be on the lookout for a potential surge above the 1.40 as bullish momentum remains present in the GBPUSD and may contribute to a rapid acceleration to the upside. Buyers may look to open orders at current price levels and ride the enthusiasm higher. The next foreseeable area of interest above 1.40 will be the 1.42 mark where we can expect some degree of resistance.

(Chart Source: Tradingview 21.02.2021)

Technically speaking, there remains room on the upside in the GBPUSD daily and weekly charts. Though after such a strong performance in the past months, some degree of mean reversion may send the pair back down for a test of its 20-day MA, presenting buying-the-dip opportunities in the short run.

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.