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GBP/USD back into the hands of the bulls despite Brexit 'noise'

  • GBP/USD bulls buying the dip on Brexit noise, the broader sentiment is strong.
  • GBP/USD back onto the 1.34 handle.

There has been a fair bot of Brexit noise this week and for today, despite the progress being made between Britain and the EU with the recent headlines yesterday where a settlement figure was reportedly agreed by the 'The Times' and 'The Telegraph', the EU Parliament wrote a letter to Barnier saying that there is not enough progress made in Brexit talks, especially around citizens rights and Ireland. The pound has sunk on this, but it does just seem to be noise and the broader theme is more positive when it comes to Brexit. Currently, GBP/USD is trading at 1.3398, up 0.35% on the day, having posted a daily high at 1.3432 and low at 1.3336.

  • EU’s Barnier hopes to report to EU about Brexit bill agreement in coming days
  • Irish Minister McEntee: Ireland cannot accept return to hard border

"Britain has bowed to EU demands and agreed to fully honour its financial commitments as identified by Brussels, removing one of the biggest obstacles to a Brexit divorce settlement," the Financial Times wrote just yesterday. 

"Reduced risks of a “hard” Brexit have also helped firm up BoE rate expectations modestly for 2018 but we caution that a lot of work still needs to be done (on border issues, EU citizens’ rights etc.) before an orderly Brexit process is assured," explained analysts at Scotiabank.

EU's Barnier hopes progress will be seen on Brexit divorce bill by next week, presumably the 4th December deadline that was agreed. He explained that the EU needs to prepare for no Brexit deal because the UK has not ruled it out.

What else has been going on?

Meanwhile, other headlines today came with Q3 US GDP (second reading) +3.3% vs +3.2% expected. also, Trump tweeted that major sanctions are coming. Yellen, speaking to Congress today is now answering questions from Congress and has said that the Jobs market and economy are not significantly overheated after saying earlier that the US economy and global expansions are "increasingly broad-based and how she expects gradual rate increases to sustain healthy labour market and to stabilise inflation around 2%. Net up this week is U.S. PCE.

"The PCE core deflator reached 1.91% last October and fell to 1.290% in August. This is the mystery of which Yellen speaks, and one in which her working hypothesis is that is it due to short-term one-off factors.  The core deflator is expected to rise to 1.4% in October. The bond market will be sensitive to any surprise, and through it, the dollar," explained analysts at Brown Brothers Harriman. 

GBP/USD levels

Analysts at Scotiabank noted that GBP/USD rallied strongly yesterday but intraday patterns suggested that Cable had peaked in the short-term, with price action forming a bearish “evening star” through European trade. In the NY shift, GBP dips had been relatively shallow, however, with those recent Brexit headlines, a test of the hourly 21-SMA was made at 1.3379 before the dip was bought back and GBP rallied onto the 1.34 stronghold once again. Another go at the downside could target where GBP’s swift move above resistance in the 1.3335/50 area was made yesterday – which now figures as a major support, according to analysts at Scotiabank. "We are constructive while the pound remains above this support zone," they added.

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