GBP/USD: Bulls find traction on the way to trend line resistance, but trade wars paint bearish bias

  • GBP/USD is currently trading at 1.3025, between a range of 1.2967 and 1.3036, reaching up towards trend line resistance on a softer dollar across the board in flakey U.S. yields and unimpressive U.S. data.

UK cross-party Brexit negotiations seem to have stagnated and have not been gaining much market attention at present. The government conceded on Tuesday that Britain would take part in European Parliament elections this month, a poll that could deliver more setbacks to both major parties. British media reported on Wednesday the talks were close to collapse

The focus elsewhere has been on trade tensions between China and the US where tensions have risen as the Trump Administration has threatened additional tariffs, following reports that China backtracked last week on key commitments in a draft agreement. Investors are taking flight to safe-havens and we have already seen the yen reach fresh highs to as low as 109.47 which is weighing on dollar LHS flows in cable. 

Sino/US trade update 

Hopes for a last-minute trade agreement have been dwindling rapidly and Trump is putting together the paperwork for higher tariffs after US officials confirmed at the start of the week an increase of tariffs to 25% from 10% on USD 200bn worth of Chinese goods early Friday (at 12:01am EDT). China responded on Wednesday that it "will have to take necessary countermeasures" should the US increase tariffs.

However, there were some ripples of optimism in markets when Trump suggested that a deal could be reached and that Xi wants to play ball. 

"The US-China trade negotiations reach a critical point on Friday. Our base case is that the Trump Administration will increase existing tariff rates as previously announced, while the two sides find some way to signal that negotiations will continue. A completed deal on Friday is very unlikely in our view, while the risk of talks breaking down is elevated," analysts at TD Securities explained, adding that, "G10 shorts versus the USD are already well populated, but we would expect the USD to retain its firm tone nonetheless."

GBP/USD levels

Analysts at Commerzbank explained that GBP/USD remains below the1.3188/97, the 61.8% retracement and 3 rd April high, where it has stalled temporarily:

"It will need to regain 1.3217 (25th January high) to introduce scope up to the 1.3351/82 resistance, where we expect it to struggle. Conflicting intraday Elliott wave counts leave us side lined. Dips lower should hold around the 200 day ma at 1.2950. Failure here targets the 1.2918 support line and the 1.2865 April low and this in turn protects the February low at 1.2772."

 

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