GBP/USD hovers past-1.3500 on UK politics, Brexit fears ahead of US ADP Employment, BOE

• GBP/USD struggles to extend three-day uptrend at weekly top.
• EU toughens rules on using antibiotics on animals, British businesses accuse government of trolling with heavy Brexit report.
• UK PM Johnson apologizes on Sue Gray report but no fines announced yet, UK Foreign Minister Truss tests covid positive.
• US ADP Employment Change, risk catalysts can entertain traders ahead of Super Thursday.

GBP/USD grinds higher around the weekly top, recently taking rounds to 1.3520 as cable traders brace for Wednesday’s London open.

In doing so, the quote fails to cheer USD weakness as challenges emanating from Brexit and the UK politics join pre-BOE caution. Also challenging the market’s immediate performance is the looming precursor of Friday’s US Nonfarm Payrolls, namely the US ADP Employment Change figures for January.

Amid a Brexit deadlock, Independent says, “Post-Brexit trade deals present a “real risk” to UK farming standards, campaigners have warned, as the EU introduces tough new restrictions on the use of antibiotics on animals. On the same line were major criticism of the 108-page “Benefits of Brexit’ report by the UK businesses over long delays, higher costs and more paperwork. It’s worth noting that UK’s Foreign Minister, newly appointed Brexit Chief, Liz Truss recently became the second Cabinet Minister to get infected with the covid, which in turn hints at the further delay in the Brexit talks and a negative sign for the GBP/USD prices.

Elsewhere, UK PM Boris Johnson apologized after finding guilty of holding parties during the covid-led lockdown, per Sue Gray's report. However, No10 refrains from any fines and said, per The Guardian, “If Boris Johnson is fined by the police over illegal parties at No 10, the public will be told.”

On the other hand, the US Dollar Index (DXY) also remains sluggish around weekly low on mixed data and unclear Fedspeak. On Tuesday, US ISM Services PMI for January rose to 57.6 versus 57.5 expected, marking the 20^th straight expansion of the manufacturing activity.

Talking about the Fedspeak, Atlanta Fed President Raphael Bostic said on Tuesday that there is a "real danger" of inflation expectations drifting from the Fed's 2.0% target to 4% or higher. On the other hand, St Louis Fed President James Bullard said that he thinks it is an open question whether the Fed will have to become more restrictive (i.e. raise rates above the "neutral" 2.0%-2.5% zone). 

It’s worth observing that the US Senate’s procedural voting on the China Competition Bill and chatters over Russia-Ukraine, as well as mixed concerns for global inflation, challenge markets ahead of the key weekly events, including the Bank of England (BOE) monetary policy meetings. Ahead of the BOE, Reuters said, “Most economists polled by Reuters think the BoE will on Thursday raise interest rates to 0.5% -- the threshold at which it has said it will start unwinding its 895 billion pounds ($1.2 trillion) quantitative easing program.”

On an intraday basis, the US ADP Employment Change for January, expected 207K versus 807K prior, will be important for the GBP/USD traders.

Technical analysis

GBP/USD bulls attack a descending resistance line from January 13, around 1.3530, while keeping the three-day rebound from the 61.8% Fibonacci retracement (Fibo.) of December 2021 to early January 2022 upside. Even so, the 100-SMA level near 1.3560 will act as an extra filter to the north before fueling the GBP/USD prices towards the previous month’s peak of 1.3748.

Alternatively, pullback moves may aim for the 50-SMA level of 1.3470 ahead of highlighting a convergence of the previous resistance line from January 20 and 61.8% Fibonacci retracement level surrounding 1.3385.