GBP/USD: On the front foot near 1.3120 as Brexit optimism defies EU’s threats

• GBP/USD stays positive around a two-week high.
• Expectations of higher wages, increasing odds of a cap to skilled migrants and strong trade ties with the US please cable buyers.
• EU’s Brexit signals fail to overcome broad US dollar weakness.

GBP/USD takes the bids to 1.3122 while heading into the London open on Tuesday. The cable is on the sixth day of gains amid broad US dollar (USD) weakness as well as optimism surrounding Brexit. The same defies the European Union’s (EU) threats ahead of the negotiation period that begins in early 2020.

With the UK’s Vice-Chancellor Sajid Javid’s announcement to offer a record hike to national wages, coupled with likely restriction on skilled migrants to the UK, seem to please the British pound (GBP) buyers. The pair might also have cheered the US Ambassador to the UK, Woody Johnson, who made a stunning 2020 prediction ahead of the beginning of trade talks between Britain and America in the New Year, as per the BBC.

This helps ignore the EU’s threats to stay prepared for no-deal Brexit, also push the UK PM Boris Johnson to break his pledge of no transition period beyond 2020.

On the other hand, odds are rising for the US-China phase-one deal as China’s Vice Premier Liu He will visit Washington for expectedly signing in ceremony.

Pair’s gains could also be attributed to the USD’s overall weakness amid year-end consolidation and better gains elsewhere. Recently, China’s headlines PMIs show a sustained recovery in the key sector of the Asian leader.

Markets will gear up for the New Year’s Eve and hence could witness a lack of momentum. However, second-tier US data and trade/political headlines might offer intermediate moves by the end of 2019.

Technical Analysis

While a 21-day SMA level of 1.3100 offers immediate support, the major downside will be limited by the monthly bottom surrounding 1.2900. Alternatively, 1.3230 holds the key to the monthly top.