British pound softens against euro and dollar

The Pound was treading water against the Euro and Dollar in quiet pre-holiday markets Tuesday but the British currency is near major support on the charts that would likely require a meaningful negative catalyst in order to break.

Pound Sterling slipped below the 1.30 handle against the Dollar Monday and was close to 1.29 by Tuesday but there is solid technical support located around the 1.28 level that could eventually draw 'dip' buyers from the woodwork.

"Sterling is reaching a major support level in GBPUSD by retreating to 1.3000 - is there really enough uncertainty at the moment to drive it notably through that level? Perhaps, with 1.2800 the next level, but suspect that hedgers and optimist may be getting active soon on the long side," say John Hardy, chief FX strategist at Saxo Bank.

The Pound has held above 1.28 ever since Prime Minister Boris Johnson agreed terms of the UK's EU exit with Brussels in early October. Meaningful bad news would likely be required in order to break that threshold and there are no major fundamental or political events in the calendar for the week ahead.

Sterling may appear to lack direction amid low-volume holiday trade but it's tipped by analysts to retain an upside bias in the months ahead.

The Pound-to-Euro rate is also nearing a solid layer of support on the charts that should hold in the absence of adverse economic or political developments over the coming days. It slipped back below the 1.18 handle last week and was trading close to 1.17 on Monday but firm technical support can be expected just above 1.16, around which the British currency spent much time trading during the six weeks heading into the December election.

"EUR/GBP swiftly bounced off its current December low at .8239 and has now risen above the midNovember low at .8522 with the October low, November 22 high and 55 day moving average at .8571/.8600 thus being in the picture. This area we expect to cap," says Axel Rudolph, a technical analyst at Commerzbank, referring to the inverse of the Pound-to-Euro rate.

Rudolph says the Poundto-Euro rate's corrective losses should come to a halt at 1.1627, with that level acting as strong support into the New Year.

"Net short GBP positions have dropped to their lowest level since May on hope that the new majority UK government will result in reduced political uncertainty. That said, PM Johnson is still using the threat of a no deal Brexit as a negotiating tactic in the forthcoming trade talks with the EU," says Jane Foley, a strategist at Rabobank. "Brexit remains a driving factor for the pound."

Tuesday's price action comes toward the tail end of year that's seen Sterling go from hero to zero and back again, with a strong start to 2019 having given way to punishing losses that endured into the Autumn months, only for Prime Minister Johnson's Brexit agreement and subsequent general election win to drive a substantial rebound into year-end.

Sterling has risen 9% against the Euro and 10.7% against the Dollar since earlyto-mid October when Johnson first announced he'd agreed terms of the UK's exit with the EU. And gains are even larger if measured from the lows struck in August when market fears of a 'no deal' Brexit under the newly-minted PM Johnson were at their fever pitch. That could mean a correction or retracement lowerwas probably always likely to follow.

"We suspect that the bulls have pared their positions amid the buy the rumor sell the fact activity since the election. Sterling returned to the $1.28$1.30 band that persisted from mid-October through late November," says Marc Chandler, chief market strategist at Bannockburn Global Forex.