Forex Market: GBP/USD trades lower at the start of the week, investors await further clues over Brexit trade talk progress

Having touched highs not seen since last Wednesday earlier on Monday, GBP/USD traded slightly lower in mid-European session, as Brexit negotiations resumed. Market mood remained optimistic due to hopes over a working COVID-19 vaccine and signs that the United Kingdom and the European Union might make progress in reaching a post-Brexit trade agreement.

Investor optimism over a compromise in EU-UK Brexit negotiations grew after reports emerged stating that Dominic Cummings, the most powerful adviser to Prime Minister Boris Johnson and a Brexit campaigner, would leave Downing Street in December. At the same time, UK’s chief negotiator David Frost said over the weekend that the two sides had made certain progress in trade deal talks.

However, ING analysts said in an investor note that core issues were largely unresolved, while time to get a deal done grew short.

“While we see officials suggesting more than one week may still be needed, the technical time for ratification in the EU and UK is dangerously shrinking,” the analysts wrote.

“In light of this, we could see both parts rushing into a deal already this week.”

The latest CFTC data showed that speculators’ net short positions in the Pound had increased for a second straight period during the week to November 10th.

Meanwhile, on the US political front, President Donald Trump still refused to acknowledge losing the November 3rd election, while intending to continue a court fight.

According to analysts, some investors have already started to shift their focus from election results to possible contenders for Joe Biden’s administration.

“Over the weekend, uncertainty around the U.S. presidential election has declined as it became more certain that Joe Biden secured more votes, and it’s easier for traders to take risks on hopes that the next administration would soon take measures against the coronavirus,” Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said.

As of 10:41 GMT on Monday GBP/USD was edging down 0.10% to trade at 1.3179, after earlier touching an intraday high of 1.3242, or its strongest level since November 11th (1.3314). The major pair has risen 1.80% so far in November, following another 0.26% gain in October.

In terms of economic calendar, today market players will be paying attention to the monthly data on manufacturing conditions in the New York area for November, due out at 13:30 GMT.

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 21.5 basis points (0.215%) as of 9:15 GMT on Monday, down from 22.0 basis points on November 13th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.3166
R1 – 1.3226
R2 – 1.3261
R3 – 1.3321
R4 – 1.3382

S1 – 1.3131
S2 – 1.3071
S3 – 1.3036
S4 – 1.3002