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Sterling (GBP) Weekly Outlook - Friction when Technicals and Fundamentals Collide

Sterling (GBP) Weekly Outlook - Friction when Technicals and Fundamentals Collide

Nick Cawley, Strategist

Sterling (GBP/USD) Price, Analysis and Chart:

  • Sterling approaching its make-or-break moment.
  • GBP/USD repeatedly rejected around 1.3400

The post-Brexit trade talks between the EU and the UK are nearly out of time with a decision likely in the next few days. While it has always been expected that these negotiations would go down to the wire, the reality is that if there is no breakthrough in the next few days any deal struck afterward would not be able to be ratified by the EU member states, leaving the EU and UK trading on WTO terms from January 1, 2021.

The charts are now starting to show that the recent optimism that a deal will be struck fading away, leaving Sterling vulnerable to a sharp sell-off if trade talks fail. For now, the fundamental backdrop is more important than any technical set-up and will remain so until a deal is struck or not.

Technical vs Fundamental Analysis in Foreign Exchange

GBP/USD continues to fail around the 1.3400 level and is unlikely to make a confirmed break higher ahead of any trade talk confirmation. It may well be that a ‘skinny’ EU-UK trade deal is reached in which case cable will likely press the 1.3515 high printed mid-December 2019 before stair-stepping one or two higher over the coming weeks. A no-deal sees 1.2675 come under short-term pressure.

GBP/USD Daily Price Chart (February – November 27, 2020)

Sterling (GBP) Weekly Outlook - Friction when Technicals and Fundamentals Collide

IG client sentiment data show34.64% of traders are net-long GBP/USD with the ratio of traders short to long at 1.89 to 1.The number of traders net-long is 2.04% higher than yesterday and 0.28% lower from last week, while the number of traders net-short is 7.37% lower than yesterday and 4.92% higher from last week.

Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading bias.

EUR/GBP is a better indicator of EU-UK relations and the recent break back above trendline resistance is again highlighting market nervousness. From a technical angle, the 20-day sma moving below the 200-day sma suggests the pair are moving lower although horizontal support at 0.88647 has held firm over the last few months.

EURGBP Daily Price Chart (February – November 27, 2020)

Sterling (GBP) Weekly Outlook - Friction when Technicals and Fundamentals Collide

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What is your view on Sterling – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.