Market Overview

23 December 2020

The British Pound May Extend its Gains in 2021

The United Kingdom became a lead actor this Christmas week as the news about the new coronavirus strain discovered in this country sharply hit markets. Risky assets went under a sell-off in recent days as new fears over the spread of the coronavirus and the possible ineffectiveness of the vaccines which have begun to be distributed, seemed to freeze investors’ hearts. Moreover, EU-UK trade negotiations over Brexit have been unsuccessful so far and this has amplified skepticism that the deal will be reached before the final-final deadline on December 31.

However, some positive news over the Brexit deal came from the President of the European commission Ursula von der Leyen and British Prime Minister Boris Johnson, who are discussing the most debated issues of fishing in an ultimate attempt to find a compromise before the rapidly approaching deadline.

The Pound found a certain support after GDP data for the third quarter in the UK was positive at 16% vs expected 15.5%. The overall GDP for nine months fell just 8.6% vs expected 9.6%. The US Dollar also gained strength after the US GDP data also shed a positive light on the third quarter with a tremendous upswing of 33.4% against 33.1% expected.

The substantial volatility in GDP/USD opened a new wide technical trading range of 1.32800-1.36200 with a clear upward trend. This trend might be supported if the Brexit negotiations are successful before the deadline, or if it is to be extended to January 2021 with the existing trade conditions still in place.

A possible upward correction of the Greenback may seem like a breath of fresh air after a long decline of the US Dollar to other major currencies.  It could seem that closing short positions for the Greenback could be appealing just before the long holiday.

The trend for a weaker Dollar may continue in 2021 as the newly printed money from the relief package of $900 billion will be released into the financial market. So, a stronger Pound may seem like an attractive idea for 2021. The British currency may find a support at 1.32500-1.32800 and continue to perform gains with a target of 1.3400-1.34600. However, in case of a no-deal Brexit and the termination of negotiations between EU and the UK, the Pound may plummet to the 1.24000 level.


Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.


Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.42% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.