GBP/USD is retracing some losses today, but downside bias remains in tact
The lows earlier today and overnight stalled at around 1.2840-50 with the previous swing region helping to provide some support. But also, it needs saying that the downside move yesterday occurred in a period of thin liquidity. Hence, price action tends to be a bit more exaggerated under such circumstances.
As for today, we're seeing some retracement to the downside move but it's not really changing the overall picture just yet. With a Brexit deal seen being pushed towards December now, it's adding further uncertainty and worries for the pound in the near-term. And with focus in trading being entirely on that, expect the pound to be weighed down as long as the headlines fail to suggest that a breakthrough is coming in the next month.
In the session ahead, we'll be getting UK wage growth data to come at 0930 GMT. Expectation is for a +3.0% 3m/y headline reading which would dwarf last month's reading of +2.7% 3m/y. In my view, that bit of positive expectation is what is helping to keep the pound afloat for the time being.
Any further positive data beats beyond that will offer the pound some very short-term relief but it won't reach an extent where it changes BOE rate hike pricing (gilts) as the focus will quickly shift back towards Brexit.
Given that backdrop, any rallies put forward by the data release later will be sold into and that's more or less the expectation right now by markets. It's all about the anticipation towards the data and once that is out of the way, normal service resumes as the focus on the pound can squarely move towards Brexit alone.
As for where that leaves cable, we're still very much on track to make a move towards the September low of 1.2786 and that will be the first pit stop on the way down unless Brexit optimism is revived in the next 48 hours.