GBP/USD: Coronavirus tests post-BOE gains above 1.3300, UK Retail Sales, Brexit eyed

• GBP/USD grinds higher after posting the biggest daily gains in a month.
• BOE announced 0.15% rate hike, while giving more importance to inflation target.
• UK reports record daily covid infections, signs FTA deal with Australia but to drop key ECJ demand on NI.
• UK Retail Sales for November, risk catalysts will be important to follow.

GBP/USD defends the post-BOE run-up past 1.3300, near 1.3325 during Friday’s Asian session. While the “Old Lady” pleased bulls with a rate hike the previous day, coronavirus woes and Brexit jitters stay on the table to challenge the immediate upside.

The UK, unfortunately, reports the second consecutive day with all-time high daily covid infections, recently up by 88,376. The government has already levied activity restrictions but the faster spread of the South African covid variant seems to trouble the authorities ahead of the holiday period. “England's Chief Medical Officer warned daily hospital admissions could also hit new peaks due to the fast-spreading Omicron coronavirus variant,” said Reuters.

Elsewhere, London and the European Union (EU) recently made good progress on the Brexit talks as the UK eases its stance on fishing for Fresh and pushed back the border checks on the goods from Ireland beyond January 01 deadline. On the same line is the Financial Times (FT) news saying, “The UK government is on Friday expected to drop its demand to remove the European Court of Justice as the ultimate arbiter of trade rules in Northern Ireland as it seeks to de-escalate tensions with Brussels.”

FT also mentions that the European Commission will on Friday propose a law to ensure Northern Ireland continues to receive medicines from the UK.

Not only with the EU, but the Brexit talks with Australia are also positive as Britain and Canberra recently signed a Free Trade Agreement (FTA) deal. “It is described as the first post-Brexit deal negotiated from scratch and not "rolled over" from trade terms that the UK enjoyed while in the EU. The government estimated it would unlock £10.4bn of additional trade while ending tariffs on all UK exports,” said the BBC.

Markets remain cautious amid the faster spread of Omicron and rethink over the recent central bank actions. That said, the Bank of England (BOE) announced a 0.15% hike in the benchmark rate and favored the bulls. “Relative to the November Report projection, there has been significant upside news in core goods and, to a lesser extent, services price inflation…The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework," per the BOE MPC Statement.

Amid these plays, equities closed negative and the S&P 500 Futures struggle for fresh clues by the press time.

Looking forward, UK Retail Sales for November, prior -1.3% YoY, will be important for the GBP/USD traders to watch. It should be noted, however, that the BOE has already announced the much-awaited rate hike and hence the data may have a little positive impact but negative surprises can join the covid woes to recall short-term sellers.

Technical analysis

A clear upside break of a five-week-old descending trend line needs validation from early November’s swing lows, near 1.1.3355-60, before targeting September’s bottom surrounding 1.3410 and 50-DMA level of 1.3483. Alternatively, a downside break of 1.3270 should recall the short-term sellers targeting the yearly low of 1.3160.