GBP : Aiming Higher

(Thu, 31 Dec 2020).

APPROVAL OF BREXIT TRADE DEAL MAY BOLSTER GBP

The long awaited approval of Britain’s post-Brexit trade deal with the European Union may bolster the British Pound in the near term, as UK lawmakers approved the historic agreement just 24 hours before the final deadline on December 31.

Prime Minister Boris Johnson stated after the ratification of the trade deal that “the destiny of this great country now resides firmly in our hands”, adding that “we take on this duty with a sense of purpose and with the interest of the British public at the heart of everything we do”.

However, the agreement has very limited provisions for the local services industry – which accounts for 80% of the British economy – which could severely hamper the nation’s economic recovery. Nevertheless, with the UK and EU locking in tariff-free and quota-free trade in goods, investors may put a premium on GBP in the short-term.

Moreover, regulatory clearance of the coronavirus vaccine produced by the University of Oxford and AstraZeneca may also buoy the local currency. Health Secretary Matt Hancock believes that with both AstraZeneca and Pfizer’s vaccines now being actively distributed, the country could overcome the novel coronavirus by spring 2021.

GBP/USD DAILY CHART – PROBING KEY RESISTANCE RANGE

From a technical perspective, GBP/USD rates are challenging a key resistance range at 1.3610 – 1.3650, after bursting through the psychologically imposing 1.3600 mark. Bullish moving average stacking, in tandem with a bullish crossover on the MACD indicator, suggests the path of least resistance favours the upside.

A daily close above the May 2018 high (1.3666) would probably neutralize near-term selling pressure and clear a path for prices to probe the 78.6% Fibonacci (1.3782). Conversely, failure to gain a firm foothold above the resistance range could trigger a pullback towards confluent support at the 2019 high (1.3514) and the 8-day exponential moving average.

GBP/JPY DAILY CHART – SCHIFF PITCHFORK GUIDING PRICE HIGHER

GBP/JPY also looks set to extend its recent topside push, as price remain constructively perched above key support at the November high (140.31) and psychologically pivotal 140.00 level. With both the RSI and MACD indicator tracking firmly above their respective neutral midpoints, further gains appear in the offing.

Pushing above the December high (141.21) and Schiff Pitchfork median would probably generate an impulsive push to test the September high (142.71). Alternatively, falling back below 140.00 could allow sellers to regain control of the exchange rate and drive prices back towards the 34-EMA (139.05).

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