GBP/USD trade to its highest levels since May 2018 but just be mindful that thin liquidity conditions are still prevailing this week

GBP/USD D1 31-12

The push higher in the past few sessions owes more to do with the dollar slipping up rather than the pound surging, with cable now trading to its highest levels since May 2018 at 1.3668 in European morning trade.

However, the big caveat here is that this is coming amid thin liquidity conditions as the market is still in holiday mood before real money flows start returning next week.

In terms of pound optimism following the Brexit trade deal, I would argue that there isn't a whole lot to that and we could still see a 'buy the rumour, sell the fact' play materialise going into the new year.

I mean, EUR/GBP is testing the 0.9000 level again currently and moving back below its 100-day moving average of 0.9035. The 200-day moving average at 0.8979 will be key to watch in gauging pound sentiment looking towards next year.

As for cable, that needs to be balanced out by dollar sentiment as well - which isn't looking too great as speculative trades continue to pile more misery on the greenback in holiday thin trading this week.

If real money flows threaten a further rout in the dollar, cable could be looking towards 1.4000 next based on the charts. So, if one were to bet on the pound underperforming post-Brexit, it would be better to focus elsewhere than against the dollar.