GBP / USD remains under pressure after hitting weekly lows at 1.2880

• DXY is heading towards the highest close since the end of September, still supported by risk aversion.
• GBP / USD falls below the 20-day moving average for the first time in a month.

The GBP/USD it bottomed at 1.2880, the lowest level in nearly two weeks, and then trimmed losses, climbing above 1.2900. At time of writing, it is trading at 1.2915, a drop of 75 pips for the day, poised to post the fifth daily loss in the last six trading days.

A stronger US dollar is the key factor in the GBP / USD decline. Risk aversion boosted demand for the dollar. The US economic data was better than expected, but does not offer additional support to the dollar.

The US dollar index rose above 94.00 to the highest level in nearly a month. The outlook now points to higher gains for the DXY, particularly if risk aversion prevails in financial markets.

As for the British pound, the Brexit denials continue but without headlines for now. CIBC analysts note that a Brexit deal would likely offer only temporary relief for the pound. They see that the short-term outlook continues to be dominated by late-stage Brexit negotiations, rather than fundamentals. “If an agreement is reached, eliminating the threat of tariffs and quotas, a possible rebound in British pound relief is expected (…) we would not expect any immediate gains in sterling to be lasting. Although any free trade agreement would avoid the risks of tariffs and quotas, the UK still faces the prospect of significant trade friction, through new customs restrictions. ”

From a technical perspective, the GPB / USD is about to test a key support zone between 1.2840 and 1.2860 that contains many October lows and the 100-day moving average. A bounce to 1.2970 (20-day moving average) should be seen as corrective. A rally above 1.3060 would remove the negative tone and signal greater strength.

Technical levels