Forex Market: GBP/USD off three-week lows as dollar weakens, chances for post-Brexit deal seen improving

Having touched a three-week low in early Asian trade on Monday, GBP/USD regained certain ground later in the day and was set to snap a four-day streak of losses, as the US Dollar weakened while the chances for an EU-UK trade deal are now seen as improving.

A COT report showed that investors’ short exposure in the US Dollar had risen to levels not seen since May 2018 during the week to June 16th.

At the same time, EU officials said last Friday that the European Union remained committed to striking a deal with the UK following Brexit.

“We jointly stressed our willingness to undertake all possible efforts to come to an agreement,” European Commission President Ursula von der Leyen said at a news conference following the EU summit on Friday. “For this we have to bridge wide divergences, which remain to be solved.”

European Council President Charles Michel added that negotiations between the two sides had to be intensified. He also pointed out the EU’s willingness to reach a new deal with the UK, “but not at all costs.”

While the Johnson administration aims at a loose trade deal with the bloc, the EU leaders strive to achieve much closer future relations encompassing areas such as climate, security, fishing and transport.

In addition, during a meeting in London on June 18th French President Emmanuel Macron told PM Boris Johnson that France continued to support reaching an agreement on Brexit.

“In the two talks that Boris has last week there was real progress, both sides came out more optimistic and it seems that they are trying to compromise on all the open issues,” Athanasios Vamvakidis, global head of G10 FX strategy at Bank of America Merrill Lynch, said. Vamvakidis also noted that “the chances for a trade deal have improved.”

Meanwhile, new COVID-19-related measures are to be announced across Britain this week, which may include the easing of the 2-meter social distancing rule.

As of 11:55 GMT on Monday GBP/USD was gaining 0.41% to trade at 1.2399, rebounding from an intraday low of 1.2336, or a level not seen since June 1st (1.2328). Last week the major pair retreated 1.53%, while marking its worst performance since the business week ended on May 15th.

On today’s macroeconomic front, at 14:00 GMT the National Association of Realtors will report on US existing home sales. The respective index probably dropped 2.3% to a seasonally adjusted annual level of 4.20 million units in May compared to April, according to market consensus. In April, sales of previously owned houses plummeted 17.8% from a month ago to reach 4.33 million, or the lowest level since September 2009.

Bond Yield Spread

The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, equaled 26.8 basis points (0.268%) as of 10:15 GMT on Monday, up from 23.8 basis points on June 19th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.2383
R1 – 1.2421
R2 – 1.2495
R3 – 1.2533
R4 – 1.2572

S1 – 1.2310
S2 – 1.2271
S3 – 1.2198
S4 – 1.2125