GBP/USD Easing Further After Tuesday’s Losses

GBP price, Brexit news and analysis:

  • Halted vaccine trials at two US companies, and no sign of progress towards a US stimulus package, have together lifted the US Dollar and damaged GBP/USD in the process.
  • GBP may also be suffering from pessimistic comments Tuesday from the Bank of England Governor and by stricter anti-virus guidelines in the UK.
  • However, the European Council meeting that begins Thursday remains the focus for Sterling traders, with a draft statement suggesting stepping up no-deal preparations as the EU and UK continue to bicker on their post-Brexit relationship.

GBP/USD breaks below support

GBP/USD has broken below support at 1.2885 from the 20-day simple moving average after a series of events Tuesday ended its previous advance. Now, further support at 1.2822 from the 100-dma needs to hold if that advance is to resume.

GBP/USD Price Chart, Daily Timeframe (July 14 – October 14, 2020)

Source: Refinitiv (You can click on it for a larger image)

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The principle factors weakening GBP/USD have been news that two US companies – Eli Lilly and Johnson & Johnson – have paused their Covid-19 vaccine trials, while the talks in the US on a fiscal stimulus package are still making no progress. That has boosted demand for the safe-haven US Dollar at the expense of the GBP/USD pair.

Bailey and Brexit

Domestically, Bank of England Governor Andrew Bailey said Tuesday that he did not think the UK economy was undergoing a sharp V-shaped recovery because of headwinds from a second wave of Covid-19. That came after the UK Government announced a new three-tier system of local lockdowns.

In addition, there is widespread pessimism on the progress of talks between the EU and the UK on their post-Brexit relationship. A two-day meeting of EU leaders begins Thursday and they seem likely to kick the can down the road again.

A draft statement from the European Council meeting, reported by Reuters, said the talks are “still not sufficient” to seal a new trade deal and that EU leaders will step up their preparations for no deal by the December 31 end of the current post-Brexit transition period.

Ahead of the summit, Sterling overnight implied volatility has jumped to a seven-month high above 13%.

of clients are net long.

of clients are net short.

Change in Longs Shorts OI
Daily 9% -19% -8%
Weekly 8% 3% 5%

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— Written by Martin Essex, Analyst

Feel free to contact me on Twitter @MartinSEssex

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