The weakness in the US dollar continued as risk appetite improved, with the British pound rising last week to a level not seen since May 2018 against the US dollar, amid hopes that a Brexit deal will be reached by Sunday.
As the Brexit trade talks went the extra mile, Sterling reversed some of the previous week’s losses and ended as the strongest. Although at the time of writing this opinion is not yet available. For a week shortened over the holidays, the outcome of the Brexit trade negotiations – a deal, a rejection of a deal, or another extra mile – will be a major source of instability.
Meanwhile, the resumption of the broad dollar downtrend was the main topic last week. The downtrend of the dollar index continued last week and finally broke 90 points to 89.73. Trade could become more restrained during the new week if the still ongoing Brexit trade talks do not give us something new.
A Brexit agreement remains elusive and it does not appear that there will be anything concrete as the new week approaches, which could partly explain some weakness in the pound amid the leveling out of positions, as previously warned.
GBPUSD continues to consolidate from the 1.3624 temporary top. Primarily, intraday bias remains neutral. Further gains are expected while support at 1.3134 is held. A breakout of 1.3624 would lead to a 61.8% forecast of 1.1409 to 1.3482 from 1.2675 to 1.3956 next.
As for the cable, further short-term support is seen closer to 1.3465 with some minor support closer to 1.3450; that is, 1.3500 should give way.
The economic calendar has a relatively busy week ahead. Final Q3 GDP data will be released on Tuesday along with current account data and final business investment data. Aside from notable changes in preliminary estimates, the markets are likely to cancel statistics this week. In addition to the economic calendar, news about Brexit and COVID-19 will influence before the holidays.
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