GBP/USD defends 1.3400 around monthly top even as coronavirus, Brexit probe bulls

• GBP/USD seesaws in a choppy range after stepping back from monthly top.
• UK, France reports record daily infections, US marks 55% average daily jump in cases in the last one week.
• EU’s Šefčovič terms UK’s threats to trigger Article 16 as "enormously disruptive", EU-UK agreed over fishing quota for 2022.
• Light calendar, year-end holiday mood to restrict moves, risk catalysts are the key.

GBP/USD treads water around 1.3430 during the initial Asian session on Wednesday, after reversing gains from the highest level since November 19 the previous day. The cable pair seems to track the US dollar moves while also taking clues from the headlines concerning Brexit and the South African covid variant, namely Omicron.

The US Dollar Index (DXY) posted the heaviest daily gains in a week while defending the 96.00 threshold, around 96.15 by the press time. In doing so, the greenback gauge benefits from the market’s rush to the USD amid mixed data and unclear moves of the equities, as well as US Treasury bonds.

Wall Street benchmarks traded volatile as DJI managed to print a five-day uptrend but S&P 500 snapped a four-day winning streak even after refreshing the record top during early hours. Nasdaq also closed negative for the first time in five days after poking the all-time high levels marked in November. That said, the US Treasury yields had a volatile day as a coupon for the two-year benchmark jumped to the highest since March 2020 but the 10-year Treasury yields remained lackluster around 1.48%.

Talking about data, the US Housing Price Index eased below 1.2% forecast to 1.1% in October while S&P/Case-Shiller Home Price Indices stepped back from 19.5% prior to 18.4%, versus 18.5% market consensus. However, the Richmond Fed Manufacturing Index for December crossed the upwardly revised 12.00 figure with 16.00%.

On a different page, the UK reports the all-time high daily infections, above 122,000 a day after the authorities rejected any new activity restrictions during the rest of 2021. France joins the line with 179,807 new confirmed cases making it the world’s heaviest daily toll. Elsewhere, “The average number of new COVID-19 cases in the United States has risen 55% to over 205,000 per day over the last seven days,” according to a Reuters tally.

In addition to the virus woes and indecisive markets, Brexit fears and Fed rate hike woes also weigh on the GBP/USD prices. Although the European Union (EU) and the UK agreed over fishing quotas for 2022, European Commission Vice President Maroš Šefčovič was recently spotted disliking the UK’s threat to use Article 16 by Politico. “British decision to activate Article 16 of the Northern Ireland Protocol would have "serious consequences" for Northern Ireland's economy, endanger peace in the region and constitute an "enormous setback" for EU-UK relations,” said the news while quoting the EU diplomat.

Given the mixed clues and inactive markets, the GBP/USD may grind higher while second-tier US data and risk catalysts may offer intermediate clues.

Technical analysis

GBP/USD clings to the 50-DMA while taking rounds to September’s lows, which in turn requires the bulls to post a fresh monthly high past 1.3460 to keep the reins. Following that, the mid-November swing high around 1.3515 will be in focus. On the contrary, monthly horizontal support near 1.3375 should lure the sellers during the cable pair’s pullback.