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Sterling Q1 2021 Forecast: GBP/USD Closing a Tumultous Year on the Front Foot

Sterling Q1 2021 Forecast: GBP/USD Closing a Tumultous Year on the Front Foot

Justin McQueen, Strategist
  • GBP/USD Outlook – Less Uncertainty and a Soft USD Backdrop.
  • EUR/GBP Outlook – Modest GBP Upside Against EUR on a Trade Deal.
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There is a long-standing argument among market analysts - which is more important, technical, or fundamental analysis? This argument can go on for a long time but in the case of Sterling over the past few months, fundamentals – Brexit and Covid-19 – have been the main drivers of price action. What lies ahead?

Technical vs Fundamental Analysis in Forex Trading

One of the most liquid trading pairs, GBP/USD is closing the final quarter of the year on the front foot with gains of over 4%. EU-UK trade negotiations are going down to the wire with an outcome not known at the time of this analysis, though, the expectation is that a thin deal will be announced. That said, in such a scenario, reduced political headwinds in the short run for GBP/USD, alongside a softer USD environment may well further initial gains towards 1.3700. However, as optimism rises that a deal can be reached, there is always the risk of a “buy the rumour, sell the fact” response (this same dichotomous response played out after the 2019 General Election).

GBP/USD Monthly Chart

GBPUSD chart

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