GBP/USD: Bears attack 1.2500 amid risk-off mood
- GBP/USD seesaws near the intraday low while extending falls from 1.2572.
- Big British businesses anticipate late recoveries from the pandemic, UK’s Raab signals suspension of extradition treaty with Hong Kong.
- UK PM Johnson rules out second national lockdown, Dominic Cummings push Brexit negotiators to stick firmly to red lines.
- US doubt dip recession feared, EU summit extends for third day with deadlock over plans for 750 billion Euros.
GBP/USD drops to 1.2520, down 0.37% on a day while heading into the London open on Monday. The Cable’s latest fall has more to do with the broad risk aversion wave than the pessimism surrounding Brexit and tussle with China, not to forget increasing odds of the BOE’s negative rates. As a result, a light calendar will also be the key as it comprises comments from the BOE policymakers and the already extended EU (European Union) summit.
Despite broad consensus over EUR390 billion in grants and EUR360 billion in loans, the European policymakers continue to jostle over the much-awaited aid package at the EU summit. In addition to the same, the Financial Times’ call over the double-dip recession in the US, due to the rising coronavirus (COVID-19) cases, adds to the broad risk-off mood.
On the other hand, the UK Foreign Secretary Dominic Raab’s signal to defy the extradition treaty with Hong Kong and a survey from Deloitte, suggesting long overhaul per the UK’s big firms, play their part in dragging the GBP/USD pair. Furthermore, The Sun’s news that the UK PM Boris Johnson’s adviser Dominic Cummings is pressuring British negotiators to stick firmly to their red lines to get the best Brexit deal possible and last week’s signals from the BOE Governor Bailey, suggesting likeliness of negative rates, also lure the bears.
Alternatively, the UK PM Boris Johnson’s refrain from recalling the lockdown struggles to defy the US dollar pullback.
Amid all these catalysts, the market’s risk-tone remains heavy as the US 10-year Treasury yields dropped 1.1 basis points to 0.617% whereas stocks in Asia-Pacific also print mild losses.
Looking forward, speeches from the BOE’s Haldane and Tenreyro could offer near-term direction. However, major attention will be on the risk catalysts, mainly the virus and hopes of further stimulus, not to forget global tussle with China over Hong Kong bill.
Technical analysis
The pair have been struggling between 100-day and 200-day EMA off-late. Hence, either a clear break above 200-day EMA level of 1.2590 or a strong downside past-1.2515, comprising 100-day SMA, will be needed for the pair to trade the monotony.