GBP/USD fades a corrective drop from the weekly bottom, but the bulls are still in control.
The EU prepares for the official announcement of a postponement of the sausage war, as the United Kingdom announces its post-Brexit subsidy plan.
Infections are diminishing in the UK, but the mortality toll from covid is rising.
The UK Q1 GDP will confirm the initial projection of -1.5 percent QoQ, but the US ADP Employment Change will be more crucial data.
Heading into Wednesday’s London begin, the GBP/USD picks up bids to 1.3852, but struggles to keep Asian session gains to 0.11 percent. Despite this, the cable remains positive, hovering around a one-week low hit the day before, thanks to recent optimistic Brexit stories.
The EU is ready for the formal announcement after signaling a willingness to compromise on a ban on British meat from Northern Ireland (NI). According to the BBC, “the European Union (EU) is to formally agree to postpone a ban on the sale of select British meat products in Northern Ireland.” It should be noted, however, that the bloc’s grievances concerning the NI Protocol are still pending in court.
On the other side, following Brexit, the UK government announced measures to assist domestic businesses by overseeing company subsidies. Bloomberg quoted UK Business Secretary Kwasi Kwarteng as saying that the system will be “more nimble and adaptable” than it was before Brexit, when the UK followed the EU’s state aid regime and substantial subsidy payments required permission from the European Commission.
While the Brexit news kept risk-takers optimistic, the coronavirus (COVID-19) updates put the bulls on the defensive. According to the latest numbers from the United Kingdom, there were 20,479 new COVID-19 cases reported on Tuesday, up from 22,868 the day before, and the death toll increased from 3 to 23 within the time period.
It’s worth mentioning that recent market fears over covid variants have weighed on sentiment and placed a premium under the US dollar. The cautious mindset ahead of Friday’s US Nonfarm Payrolls and conflicting Fedspeak could further help the greenback. “Inflation expectations look entrenched,” Fed Governor Christopher Waller said recently in a Bloomberg TV interview, probing the risk-on mindset.
Stock futures continue to print modest advances near record highs, while US Treasury rates and the US dollar index (DXY) remain sluggish at press time.
Moving on, the final print of the UK’s Q1 GDP, which is expected to confirm -1.5 percent QoQ predictions, might have an immediate impact on GBP/USD prices, primarily to the upside if positive surprises are reported. However, the US ADP Employment Change for June, which is predicted to be 600K compared to 978K previously, becomes more significant data. Above all, Brexit and sensational headlines, as well as Fedspeak, have the potential to keep the driver’s seat occupied.
GBP/USD is on the sellers’ radar after the previous rally failed to defy the downside trend by holding below the 100-day EMA with mostly the same MACD circumstances. However, following the pair’s additional decline, an upward sloping trend line from early February, around 1.3800, has become the crucial local support to watch. Meanwhile, a break of the 100-day EMA to the upside above 1.3905 might target the 1.4000-4010 resistance level, which has seen multiple tops since mid-March.
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