GBP/USD defends 1.3500 during three-day downtrend on strong yields, Brexit fears
- GBP/USD drosp for third consecutive day amid broad USD strength, Brexit woes.
- US Treasury bond yields renew multi-day high amid market’s indecision ahead of Thursday’s US CPI, trade/political fears.
- DUP hints at continued political deadlock in Northern Ireland, British Science in limbo amid no talks over EU funding.
- UK PM Johnson is under fresh political pressure after Labour Party leader got hackled by mob.
GBP/USD bounces off intraday low to 1.3520 during the three-day downtrend ahead of Tuesday’s London open.
Firmer US Treasury yields underpin US dollar strength, which in turn weigh on the cable pair of late. Also acting as a bearish catalyst is the recently escalating Brexit fears ahead of Friday’s key talks between UK Foreign Secretary Liz Truss and European Commission Vice President Maros Sefcovic.
The US 10-year Treasury yields rose around three basis points (bps) to refresh the two-year high near 1.95% whereas the five-year counterpart added four bps to renew the 18-month peak of 1.8050% by the press time. That said, the US Dollar Index (DXY) rose 0.20% to 95.60 at the latest.
Hawkish concerns over the US Federal Reserve’s (Fed) March meeting join geopolitical tension surrounding Russia-Ukraine and the Sino-American trade tussles to back the US bond yields. Alternatively, the market’s indecision ahead of Thursday’s US Consumer Price Index (CPI) data and cautious optimism over covid conditions seem to challenge the US bond sellers.
Elsewhere, the Politico conveyed hints of further political tensions in Northern Ireland (NI), due to Brexit, while quoting the UK region’s Agriculture Minister Edwin Poots. “The Democratic Unionist Party (DUP) won’t allow Northern Ireland’s power-sharing government to be revived unless the European Union abandons its requirement for checks on British goods arriving here,” said the news.
On the same line were comments from the British Science Minister George Freeman who admitted lack of progress on talks over EU funding as NI and fishing consume all the Brexit talk time.
It’s worth noting that The Guardian’s news conveying fresh challenges for UK PM Boris Johnson, due to hardships for Labour Leader Keir Starmer, also weigh on the GBP/USD prices. “Keir Starmer has been rescued by the police from a mob of angry anti-vaxx and anti-lockdown protesters,” said The Guardian.
That said, GBP/USD traders may witness further weakness amid firmer USD on upbeat yields, with eyes on the US Goods and Services Trade Balance for December, expected $-83B versus $-80.2B. However, major attention will be given to the late week’s Brexit talks, UK Q4 GDP and the US CPI.
Technical analysis
GBP/USD dropped to a one-week low on Monday before taking a U-turn from 1.3490, which in turn portrays the two-week-old rising channel formation. Adding to the bullish is the recently steady MACD line in the positive territory.
That said, the pair’s further upside will initially aim for the 1.3600 threshold before challenging 23.6% Fibonacci retracement (Fibo.) of the December-January upside, near 1.3615.
Alternatively, 50-SMA and the support line of the stated bullish channel together offer strong short-term support near 1.3490, a break of which will highlight 50% and 61.8% Fibo. levels for GBP/USD bears, respectively around 1.3460 and 1.3390.