- UK’s second lockdown pressurizes the pound.
- Brexit optimism helps to fight the selling.
- The US elections put traders in wait-and-see mode.
GBP/USD was trading in the negative zone as the UK government declared a second nationwide lockdown to check the fast pace of COVID-19 spread.
The pair started the week on a negative tone as the fears of economic trouble ahead due to the restrictions spoiled market optimism. Also, the chances of another booster dose from the Bank of England have increased with the fresh curbs.
Further dovishness by the UK’s central bank is negative for the GBP.
The haven-linked US dollar attracted bids and pulled down the GBP/USD to the lowest levels seen since October 7.
Despite the negatives, the pair found some support from the continuing Brexit-deal talks as the hope of a successful exit-agreement before Britain’s last days in the EU, is still on. Another support came from the upward revision of the UK Manufacturing PMI and helped the pair to stay above mid-1.2800s, recovering 90-pips from the daily swing lows.
The moves in either direction couldn’t attract follow-through buying or selling, as the uncertainty over the US election troubles the traders.
The US election polls indicate a lead for Biden against Trump. Still, the actual outcome depends a lot on the narrow gap in the battleground states, making traders wary of placing any aggressive directional bets.
The light economic docket from the UK and the US means the GBP/USD will depend on the election vibes and Brexit discussions for the direction ahead.
Cable Technical Analysis
The confluence support formed by the lower boundary of a short-term descending channel and 23.6 Percent Fibonacci level of the 1.3482-1.2676 downfall helped the pair to rebound from 1.2855. A directional move involving this point will likely determine the immediate direction in GBP/USD.
A recovery move from here would face resistance at 1.2980-85 region – 38.2 Percent Fibonacci level, and a break above that will take the pair above the psychologically important 1.3000 area, cutting-off the current bearish bias. Such a move would face resistance at 1.3045-50 and further above at 50 Percent Fibonacci level around 1.3080.
If the pair breaks below the strong support at 1.2855-50, then bears can try to take GBP/USD to 1.2800 and then to 1.2775; if the pair fails to arrest the fall there, then the 200-day SMA currently near 1.2710 will be in play.