Brexit talks are scheduled to formally resume to reach a deal by mid-November. Calls between Brussels and London have so far been held with the latest one happening earlier this week. They are seeking for ways to reignite and intensify talks.
In the past week, British Prime Minister Boris Johnson told the country to prepare itself for a no-trade-deal Brexit after European Union leaders refused to cede ground or agree to increase the pace of negotiations. Since that time, the mood in the country and Europe has changed.
Hopes for a fiscal stimulus deal in the United States are also contributing to the sterling pound’s advance. Currently, the haven dollar is coming under pressure. GBP/USD has been seen rising ahead of the news, but it exploded considerably higher and reached 1.3139, the highest level since September.
On the 4-hour charts, the sterling pound is looking bullish with the Relative Strength Index (RSI) hovering above 70 which is in overbought conditions. For now, momentum remains to the upside. However, worries about a ‘circuit breaking’ UK lockdown are weighing on the sterling pound.
Market expectations were additionally fueled by President Trump’s comments where he said that he was ready to accept a larger aid bill despite opposition from his Republican Party. These comments sparked a selloff on the US bonds and pushed the yield on the main 10-year bond jumped 4-month highs. It exerted heavy pressure on the dollar and helped the pair to gain some positive traction in the Asian and European sessions on October 21, 2020.
From a technical angle, this pair has been showing some resilience and attracted multiple dip-buying frenzies at lower levels. Nonetheless, the attempted positive move lacked any strong follow-through. This lack-luster performance suggests indecision over GBP/USD’s near-term trajectory which has warranted some precaution before placing any aggressive directional bets.
Therefore, any subsequent strength is highly likely to confront stiff resistance near a short-term descending trend-line that is currently located near the 1.3015-20 zone. Putting that in mind, a strong breakthrough may be considered to be a new trigger for the bullish traders. That may lift the pair back towards the monthly swing highs located around the 1.3080-85 supply zone.
On the other hand, the 1.2900 round-figure mark may continue to protect the immediate downside. That is followed by important horizontal support that is located near the 1.2865-60 region.
Failure by the bulls to defend the highlighted support levels will probably negate prospects for further positive momentum. That may turn the pair vulnerable to accelerate the fall back towards the 1.2800 mark. Some follow-through selling will most likely set the stage for a plunge towards challenging the critical 200-day SMA that has currently formed near the 1.2710-1.2700 region.