Sometimes, it’s best to keep the analysis simple.

As the informal “deadline” for a Brexit deal draws nearer, sterling is becoming more attuned to headlines about the likelihood and structure of a deal. The UK’s relationship with its peers in the European Union is rapidly becoming the factor to watch when trading the pound, trumping central bank actions and traditional economic data.

Therefore, it’s not surprising that GBP/USD has spiked following today’s headlines from chief EU Brexit negotiator Michel Barnier that an agreement is “realistic” in 6-8 weeks. A subsequent report from the Guardian that a Brexit summit was likely to be scheduled for mid-November, adding some meat to Barnier’s comments. While we’ve seen similar “false dawns” before, rhetoric and actions around a potential Brexit deal have taken on a distinctly positive tone of late (see “GBP/USD Hits 3-Week Highs on Bullish Brexit Chatter” for more), raising the prospects of a GBP-positive deal in the coming weeks.

Technically speaking, GBP/USD has spiked above 1.30 on the headlines to peak above both its bearish trend line off the early May high and its 50-day moving average. A close near today’s highs would give bulls more confidence that the trend is indeed turning higher. In that case, the next level of resistance to watch will be the late July highs and the 100-day moving average around 1.3200. Conversely, a failure to hold today’s breakout could lead a small dip, but the near-term rising trend line around 1.2900 should provide an intraday floor as long as Brexit rhetoric maintains its positive tone.

As a final note, while Brexit developments will remain (pun not intended) the primary factor driving trade in cable, there are a couple of economic developments to watch this week. Tomorrow’s trade brings the monthly UK jobs report, with economists expecting +3.6k net new jobs and wages to rise at 2.5% year-over-year. Then, Thursday brings the BOE meeting, though having just raised its benchmark interest rate to 0.75% last month, little intrigue is likely.

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Source: TradingView, FOREX.com