GBP/USD Forecast: Fears of a no trade deal Brexit battle bullish technicals as 2020 kicks off

  • GBP/USD has been on the back foot on the first trading day of 2020.
  • Speculation about Brexit several data points are of interest to traders.
  • Thursday’s four-hour chart is pointing to new gains.

Fears of a no-deal Brexit are so 2019 – but 2020 will likely be all about fears of a no-trade-deal Brexit. As traders gradually return to their desks after the New Year’s holiday, GBP/USD is suffering a hangover.

The rises in 2019’s final days were fueled by end-of-year flows that sent the dollar across the board while traders seemed to ignore uncertainty over Brexit. And now, this move is undone. The greenback is gaining some ground while fears that the UK will end its transition period without a new trade deal with the EU sip in.

After Prime Minister Boris Johnson’s landslide victory, the path to Brexit was secured. The new parliament successfully passed the Withdrawal Agreement. While several additional formalities need to be secured, the UK is on course to leave the EU at the end of this month. However, most arrangements remain intact until the transition period concludes at year-end. Johnson has vowed not to extend this implementation phase, forcing a challenging timetable.

EU officials, including Ursula von der Leyen, President of the European Commission, have cast doubt that a new accord can be reached. Without a deal, Britain will revert to trading on World Trade Organization rules – which are unfavorable. 

Beyond Brexit

On the other side of the Atlantic, another deal seems more likely. President Donald Trump has announced that the US and China will sign the Phase One trade agreement on January 15. The world’s largest economies reached an accord on December 13, but some raised eyebrows at the lack of detail and silence from Beijing. The prospects seem more real now. 

Markets are cheering the news and also China’s decision to cut the Reserve Requirement Ratio (RRR) by 50 basis points. That will allow banks in the world’s second-largest economy to increase lending, injecting some $100 billion in liquidity. 

Markit’s Manufacturing Purchasing Managers’ Index for December has been revised up from 47.4 to 47.5 points – still below the 50 point threshold separating expansion from contraction. The final PMI figures are due out from the US later today, but America’s ISM numbers carry more weight.

Overall, political speculation is set to dominate, with short-lived influence from economic figures.

GBP/USD Technical Analysis

Pound/dollar is off the highs but continues trading above the 50, 100, and 200 Simple Moving Averages. Moreover, momentum on the four-hour chart is positive. 

All in all, the picture is bullish.

Significant resistance awaits at 1.3285, the high point in recent days, challenged more than once. It is followed by 1.3355, which temporarily staved off a recovery attempt in mid-December. Next, we find the 1.3425 swing high and 1.3510 – the post-election peak.

Support awaits at 1.32, a round number and Thursday’s low. 1.3150 is the next level to watch after it capped GBP/USD in late 2019. 1.3075 provided support on the way up and 1.3010 was a swing high around Christmas. 

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