The British Pound traded higher against the US dollar last week but a resurgence in headwinds removed much of the sheen in the pair. A new spike in coronavirus cases in the UK and difficulties in the Brexit UK-EU trade negotiations are increasing pressure on the economic recovery in the union.

Friday’s pullback took away a lot of the gains made in the pair over the 5-day period. The GBPUSD initially picked up steam after hitting the lower 1.28 mark on the back of encouraging signs from the UK Prime Minister Boris Johnson that his cabinet was ready to compromise on certain aspects of the Internal Markets Bill in an effort to address objections voiced by the EU.

On Thursday however, the EU officially rebuffed the UK government’s attempt at resolving the fundamental issues posed by the bill with one EU official stating that the bill, under its current state, remains materially “unchanged and still illegal”.

The major concern from the EU side is that the Internal Markets Bill would allow the UK to make unilateral changes to the deal agreed upon last year whereby a compromise was established to remove the need of a formal border between Ireland and Northern Ireland.

The EU commission president, Ursula Von Der Leyen, announced this week that Brussels will continue to negotiate with the UK over a trade deal between the two economic blocs, but asserted that the issues around the newly introduced bill by the UK will have to be resolved before any progress will be made.

From a technical perspective, the GBPUSD looks set to continue to lose ground at the start of next week. The pair has stabilised around the 0.786 Fibonacci retracement level at 1.29153 at market close on Friday, almost touching the daily low of 1.29125 suggesting a spill over in selling pressure may occur on Monday.

The likely trading range for next week will fall between the 1.30 resistance and 1.28 support levels. Traders may go for a short play towards the 1.27 handle should conditions not improve in the UK. A break below 1.28648 will confirm the downtrend in the GBPUSD. On the flipside a move back above 1.30350 may setup a test of the 20-day short term moving average.

Looking ahead, political and coronavirus related headlines will continue to dominate the pair, with the threat of a second wave pushing the British government to impose a new nationwide lockdown likely to weigh heavily on the nation’s already fragile economy. As such, the outlook on the British Pound remains neutral to bearish in the near term.

Support & Resistance Levels:

R3       1.32031
R2       1.31190
R1       1.30000
S1        1.29153
S2        1.28000
S3        1.27629

Analysed by: Mr. Thibault Moirez, Independent Analyst