GBP/USD defending 1.2900 amid Brexit brinkmanship

GBP/USD trims early-day gains, eases from 1.2945, while staying positive for the second consecutive day.

Moody’s downgraded UK on Friday over virus woes, Brexit worries and budget problems for Tories, BOE’s Bailey also spoke bearish.

EU’s Brexit negotiator Michael Barnier is up for visiting London, UK’s Gove earlier warned “the door is ajar”.

US dollar regains even as risk tone cheers Trump’s push for stimulus, virus vaccine.

Having recently stepped back from the intraday high of 1.2945, GBP/USD wobbles around 1.2925/30 while heading into Monday’s London open. Sterling buyers paid a little heed to the Brexit, coronavirus (COVID-19) woes at home while cheering risk-on mood off-late. However, fears of a no-deal divorce between the UK and the European Union (EU) join the BOE Governor Andrew Bailey’s downbeat comments to probe the bulls. Also challenging the sentiment is the scheduled visit of the EU’s chief Brexit negotiator Michel Barnier to England.

 

Will Barnier’s arrival solve the case?

UK Cabinet Minister Michael Gove’s clear show of disinterest in any further talks if the bloc keeps its head high raised barriers for Barnier’s next round of Brexit talks, to start from Monday in London. However, the recently easy comments from France, conveying that they’re to lose heavily while not leaving British fisheries terms, seem to push the region’s diplomat to witness hesitations in welcome. Even so, the matter is less likely to be solved as fisheries aren’t the only problem. The level playing field is another stumbling block.

 

While identifying the risk, global rating agency Moody’s have already cut Britain’s rating to “Aa3” from “Aa2,” putting Britain on the same level as Belgium and the Czech Republic, on Friday. Also marking the show of pessimism was BOE Governor Bailey who cited significant downside risks to the economy ahead.

 

The case is a bit positive on the other hand where US President Donald Trump’s comments that he wants the biggest stimulus plan than House Speaker Nancy Pelosi’s proposal seem to have favored the trading sentiment. Mr. Trump also signaled nearness to the virus vaccine, which in turn offered an additional boost to the stock futures and the US treasury yields.

 

Meanwhile, a 32% spike was noted in the UK’s COVID-19 cases by the end of last week. The updates also suggest a 3.1% uptick in the death toll. This speaks louder of the Tory government’s inability to tame the pandemic with local lockdowns and signals national restrictions to arrive soon.

 

Other than the virus woes, Brexit worries, Federal Reserve Chair Jerome Powell’s speech, at noon, will also be the key to watch while forecasting near-term GBP/USD moves.

 

Technical analysis

The pair rises following its formation of the bullish candlestick pattern on the daily (D1) chart the previous day. The bullish MACD conditions and the successful trading above 100-day SMA are extra price-positive signals that favor the GBP/USD bulls. As a result, the quote can again confront a 50-day SMA level of 1.3011 during its further upside. However, a confluence of the monthly top and 50% Fibonacci retracement of the September month downside, near 1.3077/82, will question the additional rise of the pair. Meanwhile, Friday’s low and 100-day SMA, respectively around 1.2860 and 1.2840, can limit short-term declines of GBP/USD.

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