Sterling bounced on Tuesday in the face of a broadly stronger dollar, driven by hopes of a breakthrough at high-level Brexit talks.
Yet all the signs suggest any assumption that economic pragmatism will overcome notions of UK sovereignty could prove as misplaced it was during the 2016 Brexit vote.
A Reuters poll last week showed that the market is optimistic on a Brexit agreement, with analysts expecting the pound to rise 4% over the next year nL8N2E82DJ. This could explain Tuesday's sterling bounce on hopes of a breakthrough at informal dinner talks between the top British and EU negotiators nL8N2EE2ZT.
Yet the news from the dinner was that, as always, both sides hope for a compromise, while Prime Minister Boris Johnson told Germany's Angela Merkel on Tuesday that the UK is prepared to leave the EU on Australia terms if no deal is reached nL8N2EE60C.
Technically, the rejection of a 21-day Bollinger band and the close through the 21-day moving average are often followed by a test of the opposite band, as seen twice in May.
Tuesday's close above the 1.2490 21 DMA after rejecting the lower band in June, targets a test of the 1.2691-96 zone that spans the falling upper 21-day Bollinger band and 200 DMA, and should cap GBP/USD.
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