GBP/USD eases from 21-DMA as UK battles Omicron, Q3 GDP, Brexit talks eyed

• GBP/USD refreshes intraday low, steps back from weekly high.
• UK’s Truss will hold first Brexit talks with EU’s Šefčovič.
• Britain to cut COVID-19 self-isolation period, rules out tougher lockdown before Christmas.
• Omicron updates, Brexit news and UK Q3 GDP can entertain traders ahead of US data.

GBP/USD pulls back from 21-DMA level surrounding 1.3270, down 0.05% intraday near 1.3262 during early Wednesday. The cable pair cheered the market’s optimism the previous day to snap a two-day downtrend. However, fears of Brexit and rising covid cases challenge the British government’s efforts to placate bears ahead of the UK Q3 GDP readings.

A 63% jump in the total covid cases in the seven days to December 21, per Reuters, rejects the No 10’s efforts to play safe, as far as the Omicron-led activity restrictions are concerned.

UK PM Boris Johnson ruled out any tougher lockdown measures ahead of Christmas. Also, Health Secretary Sajid Javid mentioned a reduction in the virus-linked self-isolation period to seven days from previously 10. It’s worth mentioning that UK Chancellor Rishi Sunak unveiled one billion pounds of relief to businesses hurt by the Omicron.

Elsewhere, the newly appointed Brexit Minister Liz Truss said, per Reuters, “London's position remained unchanged and the process needed to speed up in the New Year.” The Guardian cites UK’s Truss as saying that she would speak to her EU counterpart, Maroš Šefčovič amid renewed calls to rip up the controversial Northern Ireland protocol. It’s worth noting that the piece also mentions, “No EU-UK talks had been scheduled in the last days before Christmas until the surprise weekend resignation of Lord Frost, who had been Boris Johnson’s chief Brexit negotiator.” It's worth observing that the UK recently secured a fishing deal with Norway but failed to please domestic companies.

On the other hand, US President Joe Biden pushes for more vaccinations and sounds cautiously optimistic during the national address. The US leader also said, per The Hill, “I think there is still a possibility that his Build Back Better agenda can get done, despite Sen. Joe Manchin’s opposition of the climate and social spending bill.”

It’s worth noting that the news that the US Food and Drug Administration (FDA) is up for authorizing a pair of pills from Pfizer and Merck to treat Covid-19 as soon as this week, per Bloomberg’s sources, also underpinned the risk-on mood and favored the GBP/USD buyers. The recently recovering inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, also test the pair’s upside.

However, cautious mood ahead of the key US/UK data and Brexit fears seemed to have challenged the GBP/USD buyers of late. The final reading of the UK Q3 GDP is expected to confirm 1.3% earlier forecasts, a slew of US data may shake the cable prices. Among the key US data are the final Q3 GDP and the CB Consumer Confidence for December.

Read: Conference Board Consumer Confidence December Preview: Where do Americans turn for optimism?

Technical analysis

While the 21-DMA level surrounding 1.3270 restricts the GBP/USD pair’s immediate upside, a descending trend line from September, near 1.3310, becomes crucial for short-term buyers. Meanwhile, the 1.3170-60 area, comprising the yearly low, acts as a tough nut to crack for bears.