GBP/USD defends 1.3500 during 3-day downtrend on strong returns, Brexit fears

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  • GBP/USD falls for the third day in a row amid strong USD strength, Brexit woes.
  • US Treasury yields rebound to multi-day highs amid market indecision ahead of Thursday’s US CPI and trade/political fears.
  • The DUP hints at a continuing political stalemate in Northern Ireland, with British science in limbo amid no discussion of EU funding.
  • British Prime Minister Johnson is coming under renewed political pressure after the leader of the Labor Party was hacked by the mob.

GBP/USD bounces off the intraday low at 1.3520 during the three-day downtrend ahead of Tuesday’s London open.

Firmer US Treasury yields are supporting the strength of the US Dollar, which in turn has weighed on the Cable pair lately. The recent escalation in Brexit fears ahead of Friday’s main talks between British Foreign Secretary Liz Truss and European Commission Vice-President Maros Sefcovic is also acting as a bearish catalyst.

10-year US Treasury yields rose around three basis points (bps) to refresh the two-year high near 1.95%, while the five-year counterpart added four basis points to renew the 18-month peak of 1.8050% at press time. That said, the US Dollar Index (DXY) rose 0.20% to 95.60 at the latest.

Warmongering concerns over the March meeting of the US Federal Reserve (Fed) join geopolitical tensions surrounding Russia and Ukraine and Sino-US trade squabbles to support US bond yields. Alternatively, market indecision ahead of Thursday’s US consumer price index (CPI) data and cautious optimism over covid conditions appear to be challenging US bond sellers.

Elsewhere, the Politico hinted at renewed political tensions in Northern Ireland (NI), due to Brexit, while quoting UK Agriculture Minister Edwin Poots. “The Democratic Unionist Party (DUP) will not allow the relaunch of the power-sharing government in Northern Ireland unless the European Union drops its demand for screening of British goods arriving here,” the news said.

Along the same lines, UK Science Secretary George Freeman has admitted the lack of progress in EU funding talks as NI and Peach are consuming Brexit talk time.

It should be noted that news from the Guardian announcing new challenges for British Prime Minister Boris Johnson, due to the difficulties faced by Labor leader Keir Starmer, is also weighing on GBP/USD prices. “Keir Starmer was rescued by police from a crowd of angry anti-vaxx and anti-lockdown protesters,” The Guardian said.

That said, GBP/USD traders could see further weakness amid USD firming on bullish yields, with eyes on the US goods and services trade balance for December, expected at -$83 billion. versus -$80.2 billion. However, particular attention will be paid to the Brexit talks at the end of the week, the UK’s fourth quarter GDP and the US CPI.

Technical analysis

GBP/USD fell to a one-week low on Monday before reversing from 1.3490, which in turn depicts the two-week upside channel formation. The recently stable MACD line in positive territory adds to the uptrend.

That said, the pair’s continued rise will initially target the 1.3600 level before challenging the 23.6% Fibonacci retracement (Fibo.) of the December-January rise near 1.3615.

Alternatively, 50-SMA and the indicated bullish channel support line together offer strong near-term support near 1.3490, a break of which will highlight 50% and 61.8% Fibo. the bearish levels of GBP/USD, around 1.3460 and 1.3390 respectively.

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