GBP/USD Daily Forecast – Brexit Crisis Deepens but Pound Moves Higher
Conservatives Lose Majority, Parliament wrests control of Brexit
There were two major developments in Parliament on Tuesday, each of which has deepened the turmoil surrounding Brexit. First, Prime Minister Boris Johnson lost his majority in parliament, as a Conservative lawmaker defected to the opposition Liberal Democrats.
The drama continued into the night, as Parliament voted to take control of all parliamentary business. There were 21 Conservative lawmakers who joined the opposition in passing the dramatic vote.
This means that lawmakers could decide to pass a law which prevents the UK leaving the EU without a deal in place. The moves sets up a confrontation between Parliament and Johnson, who has vowed to take the UK out of the European Union on October 31, with or without a deal in place. Johnson has threatened to call a snap election on October 14, but it’s far from clear that this will indeed happen.
The dizzying pace of developments in Parliament could put strong pressure on the pound, which tested the symbolic 1.20 level on Tuesday. With all the uncertainty over how the government will respond to these latest developments, traders should be prepared for further volatility over the next few days.
GBP/USD is under pressure and started the week with losses. On Tuesday, the pair tested the symbolic 1.20 level for the first time since January 2017. However, the pair has since recovered and is trading around 1.22 in Wednesday’s North American session.
On the upside, the pair broke through resistance at 1.2180 earlier on Wednesday. Higher up, 1.2330 is a major resistance line. An upward trend line is evident, starting just below the 1.20 line.
In support, I continue to keep a close eye on the round number of 1.20. This symbolic level was tested on Tuesday, but with the pound pushing higher, this line has some breathing room. However, I would not consider it a strong line.