Daily Market Recap - GBPUSD Breakout Imminent?

The British pound is on the move this Tuesday, up 0.50 percent against the US dollar at the time of writing. The sterling is benefitting from a weaker greenback and upbeat economic projections released by the Bank of England despite the UK entering into a recession for the first time in 11 years.

The dollar is under heavy pressure as US Treasury yields continue to contract, reflecting the decrease in business sentiment in the US. The dollar index (DXY) is heading towards the critical level of 93.52, with a rebound off this key support zone starting to look unlikely as sellers remain firmly in control at this point.

The quadruple whammy of tightening US treasury yields, increase in US-China tensions, uncertainty in the pandemic recovery, and the stalemate in US relief package negotiations is combining to weigh heavily on the greenback.

Over in the UK, the next Brexit negotiations round starts today and will end on October 2nd. The contentious issue on fishing rights needs to be ironed out before any significant progress can be expected. The odds of reaching a comprehensive trade deal hinges on the progress made during this round, which traders will follow closely to help determine the direction in the GBPUSD.

Higher volatility can be expected in the pound during this period. Reaching a trade agreement is surely in the interest of both sides given the difficult economic context we are in, with compromises likely to go a long way. No progress in this round of talks will weigh heavily on the pound. Both sides will need to “plug the gaps” in the current trade framework in order to reach an all-encompassing free-trade deal before the end of the year.

The EU chief negotiator Michel Barnier believes that “Prime Minister Boris Johnson and the UK government want to find an agreement with the EU” and reaffirmed the EUs “willingness to reach an ambitious partnership agreement in all areas”.

(Chart Source: Tradingview 18.08.2020)

From a technical perspective, the main trend in the GBPUSD remains down but may break in favor of the bulls should the pair manage to cross above the 1.31858 resistance level. The pair made several attempts in the past month but failed at each occasion, which may be enticing bears to step back in. The downside target will be the 20-day moving average in red and the 0.236 Fibonacci retracement level in extension at 1.29629 offering strong support.

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.