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GBP/USD down in the Brexit/coronavirus dumps, bearish below Dec' 1.2905 lows

  • Brexit and trade negotiations has taken the wind out of the bulls' sails. 
  • Dollar on a firm footing, but will the data continue to support this week when a dovish Fed's Powell testifies?
  • GBP/USD below the 1.2905 targets the 200-DMA below 1.27 the figure. 

GBP/USD is currently trading between a low of 1.2872 and a high of 1.2946 having travelled a touch higher on the day as the bulls claim back some territory lost in the latter part of last week. 

The pound was in the hands of the bears last week and investors trimmed long positions to the lowest levels so far this year as tough trade negotiations between the UK and EU over the coming months are sure to make for headlines and drive sentiment.

The UK Prime Minister Johnson put forward a robust stance on his vision for a trade relationship detailing the requirements of which mirror a deal similar to that of Canada’s or “more like Australia’s” if an agreement with the EU cannot be reached. 

However, both sides are keeping their heels in the ground which is making for the ultimate showdown. Michel Barnier has insisted the UK would have to align its new trading policy with the EU’s despite leaving the bloc. At the same time, the EU Parliament Vice-President Mairead McGuinness has argued the next stage of Brexit could be potentially more difficult than the last three years.

Meanwhile, we will be looking to the UK's Gross Domestic Produce fourth-quarter (GDP Q4) this week which is likely to err on the soft side, leaving cable vulnerable to further slippage. The Bank of England recently refrained from coming off uber dovish, especially in light of some of the more positive data, but the December data was pretty miserable throughout mainland & the UK, which leaves GBP vulnerable tot he downside on a miss as the Q4 will be an important hand-off for Q1 GDP later this year. 

Strong greenback here to stay?

On the USD side, a fresh set of data published throughout last week, topped off by Friday's US positive Nonfarm Payrolls confirmed that the US continues to outpace its G10 peers in terms of economic activity. Coupled with the persistent concerns over the coronavirus both work in the greenback's favour which has pushed to fresh weekly highs, at a touch below the 99 handle in the DXY, breaking the end of Jan's trendline resistance, 98.20, which may embolden the USD bulls to really push for higher levels yet. 

Net long USD positions edged higher in a week ending February 4th.

We now await Federal Reserve's Jerome Powell's testimony this week as the next risk event besides Consumer Price Index and Retail Sales. However, if any of those come in weak or if Powell delivers a dovish tone, similar to in the January 29 press briefing, we could see some rest bite in the greenbacks robust performance which would be a step back in the bulls pursuit of the 99 handle in DXY. 

GBP/USD levels

As for levels, analysts at Rabobank argued that the short-term technical bias has shifted to the downside after GBP/USD fell below the support area around 1.2950-1.30.
Indeed, the pair has printed a fresh low below the 1.29 handle to 1.2872. While below the Dec low of 1.2905, bears can now target a move towards the 55-week moving average around 1.28 the figure ahead of the 200-DMA just below the 1.27 handle. 

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