GBP/USD attempting to hold above 1.3100 after dropping 0.75% on the day

• GBP/USD accelerated its downtrend below 1.3200 and is trying to hold above 1.3100.
• Brexit and COVID-19 fears have crushed the pound.
• A further decline below 1.3065 would ease upward pressure – UOB

The sterling accelerated its reversal from 1.3315 on Thursday, after having breached the 1.3200 level and has retreated to session lows at 1.3105. The cable has been battered by a combination of a sourer market mood, Brexit uncertainty and downbeat UK data.

The pound dives as the investors turn cautious

The GBP lost momentum as the enthusiasm triggered by the promising tests of the COVID-19 vaccine cooled off. News about the surging coronavirus cases in the UK, which has been the first European country on reaching the 50.000 deaths, has hammered optimism about a vaccine on concerns about the potential impact of the pandemic on an already fragile economy.

These fears have been confirmed by the downbeat UK Gross Domestic Product figures. According to preliminary estimates, UK economy expanded at a 15.5% annual pace on the third quarter, slightly below the 15.8% expected, with the monthly GDP increasing a mere 1.1% in September, well below the 1.5% market consensus. These figures are all the more disappointing considering that they were taken before the introduction of the second lockdown.

Beyond that, the lack of progress on the Brexit talks has added pressure on the Sterling. The negotiators will, almost certainly, miss the mid-November target set two weeks ago to reach a deal and anxiety is resurfacing. Comments of “significant differences” and warnings about the possibility that the talks might fall off are undermining hopes of avoiding a “hard Brexit”.

GBP/USD: Breach of 1.3065 would ease upward pressure – UOB

The FX strategy team at UOB sees the pair still likely to regain the 1.3200 while 1.3065 support level remains intact: “Upward momentum has improved but GBP has to move and stay above the major resistance at 1.3200 before further sustained advance can be expected’. After GBP retreated from a high of 1.3207, we highlighted yesterday (10 Nov) that ‘another attempt to move clearly above 1.3200 is not ruled out just yet and only a break of 1.3065 would indicate that the current upward pressure has eased’.

Technical levels to watch