GBP/USD pulls back from two-week high ahead of UK Manufacturing PMI

• GBP/USD declines for the first time since December 23.
• Sparse trading, fears of hard Brexit and EU’s likely readiness to disappoint UK PM seem weighing on the pair.
• Early-month activity numbers, trade/Brexit headlines could entertain market players.

GBP/USD drops to 1.3210 while heading into the London open on Thursday. The pair recently took a U-turn from two-week high amid thin trading conditions, hard Brexit fears, etc.

Following fears of a likely harsh action by the European Union (EU), if the UK PM holds his head high during the Brexit negotiations, the Financial Times (FT) came out with the economist poll indicating such an outcome will weigh on the UK GDP. With this, traders’ year-end stop-losses might have triggered amid the light trading session comprising year-end holidays.

It should also be noted that the market’s risk tone has been positive amid increasing optimism surrounding the US-China trade relations. Even so, the US dollar (USD) recovers at the start of 2020. As a result, the US 10-year treasury yields and stocks are mildly positive.

While holidays in Japan and New Zealand will keep the market’s liquidity in constrain, the trade/Brexit headlines can keep the driver’s seat. Additionally, December month Manufacturing PMI data from the US and the UK will also be the key to follow.

Even if no major change is expected from the UK/US data, a downbeat figure versus 47.4 prior and 47.6 expected could keep up the odds of further rate cuts from the Bank of England (BOE).

Technical Analysis

61.8% Fibonacci retracement of its December 12-23 fall, around 1.3285, restrict the pair’s immediate upside, which in turn increases the odds of a pullback to 50% and 38.2% Fibonacci retracement levels of 1.3210 and 1.3135 respectively.