Brexit Negotiation Pushes Pound Higher

The British Pound Pushes Higher, Backed by EU/UK Negotiations and Vaccine Optimism

by Bogdan Giulvezan

The Pound opened the week on a positive note, showing strength against its major counterparts and moving above 1.3350 against the greenback, trading at 1.3370 at the time of writing. Most of this strength was generated by optimism coming from two fronts: EU/UK trade deal negotiations and news that AstraZeneca/Oxford vaccine is showing very promising results.

Over the weekend it was said that British Prime Minister Boris Johnson is likely to intervene during the course of the current week and have a discussion with Ursula von der Leyen, the President of the European Commission, to find a long-awaited solution to the trade deal negotiations. As always, he mentioned he is not willing to compromise at any cost, but yet again, we are inching closer to the conclusion of this thorny problem that’s been going on for years.

In other news, regarding the vaccine, AstraZeneca released results that show 70% effectiveness when the vaccine is administered in two full doses, one month apart and 90% effectiveness when a half a dose and a full dose are administered one month apart. While this seems less efficient than the vaccines of Moderna and Pfizer, it must be noted that AstraZeneca’s vaccine is significantly cheaper and it doesn’t require to be transported in refrigerators, which makes distribution easier and cheaper.

Key Events for the Week Ahead

Today at 3:30 pm GMT, the Monetary Policy Report Hearings start, and BoE Governor alongside several MPC members will testify before the Parliament’s Treasury Committee on inflation and the economic outlook. The hearings usually last a few hours, during which the currency market may experience volatility.

Wednesday, November 25 will be the most important day of the week for the US Dollar as the US Prelim GDP comes out at 1:30 pm GMT (expected to show an annualized change of 33.1%) and is followed later in the day, at 7:00 pm GMT by the FOMC Meeting Minutes. This is a comprehensive report of the latest FOMC Meeting, which offers insights into the economic and financial reasons that determined the interest rate vote. Depending on the tone used throughout the report, it may have a strong impact on the greenback.

Chart Analysis – GBP/USD

The Pound is boosted by positive sentiment, while the US Dollar is weakened by investors moving into riskier assets. All this translated into a strong climb for the pair, after a bounce at 1.3100 support.

The next important level is 1.3400, which is technical/psychological resistance and a break would score a major victory for the bulls. Until that level is surpassed, we are not dealing with uptrend resumption, but the bias is bullish, thus the probability of a break is relatively high.

The RSI is moving upwards, without being overbought, while the MACD lines are spread apart and moving upwards as well, which shows that the indicators agree with the price action seen on the chart. Keep in mind that reversals may occur around 1.3400 and that the currency markets may be influenced by the EU/UK trade talks and other fundamental reasons.