GBP/USD finds resistance at 1.3550 while USD rebounds

• Spot hits highest since September 25 before pulling back.
• DXY retreats sharply and then moves significantly off lows. 
• Pound still among the top performers. 

The pound is consolidating gains across the board supported by optimism about Brexit talks. The GBP/USD pair printed a fresh 9-week high at 1.3548 before pulling back. The retreat from the highs took place amid a rebound of the US dollar that during the last hours trimmed losses. 

“The increased possibility that a broader Brexit agreement will be achieved (that is to say the UK will leave with an agreement in hand that will less destabilizing) appears to be impacting perceptions of monetary policy,” wrote analysts at BBH. The change in perception about Brexit has been a key driver in Pound’s recent strength. 

Volatile day for USD, Wall Street soars

The DXY is having a volatile day. It dropped to a 3-day low at 92.65 after The New York Times reported that the White House is planning to replace Secretary of State Tillerson with CIA Chief Pompeo. Month-end flows also contribute to the volatility. As of writing, DXY is moving back toward 93.00. At the same time, the Dow Jones keeps rising above 24,000; is up 0.85% at new record highs. 

The rebound of the USD pushed the GBP/USD pair toward the 1.3500 area, still almost a hundred pips above yesterday’s close. The retreat, if extends further could be seen as a potential exhaustion signal. 

Levels to watch 

To the upside, GBP/USD rally found resistance today at 1.3550; that area protects the key 1.3600 handled that capped the upside in September. A consolidation on top could open the doors to more gains in the medium-term. 

On the flip side, immediate support might be located at 1.3475, followed by the strong 1.3450 area and then 1.3380 (Nov 27 high / 20-SMA in four hours chart).