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GBP/USD Daily Forecast – Brexit Fears Dominate Sterling

Fears of a no-deal Brexit have resurfaced and the British pound is once again under pressure.
Jignesh Davda
GBP/USD

Sterling Volatility Likely to Continue Rising

UK Prime Minister Boris Johnson made a bold move last week to suspend parliament. Quite a bit of opposition accompanied this move and efforts to reverse it will take place.

Hearings are scheduled over three days starting Tuesday as Parliament members opposing a no-deal Brexit try to overthrow Johnson’s decision to suspend Parliament in court. There also talks of a no-confidence vote and an election.

Parliament will return tomorrow and will have a small window to take action before returning to recess. For this reason, it is likely to see a jump in volatility for the Sterling exchange rates in the week ahead.

Equity markets are closed in the United States today in observance of Labor Day. This often leads to thin trading in the currency markets. In most cases, currencies tend to trade in small ranges, but there is always the risk of a sharp move during holiday trading as liquidity is quite low during these times.

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Technical Analysis

GBP/USD was recovering higher from a low posted on August 11th, but recent price action suggests that the upward move has finished.

The exchange rate has made a clear break below a rising trendline that had supported the recovery. In addition to that there is strong downside momentum and several technical areas have failed to offer support.

Adding to a weaker pound over the past few sessions is a strengthening dollar. The trade-weighted US Dollar index (DXY) has broken to fresh highs and trades at levels not seen in over two years.

GBPUSD 4-Hour Chart

Between a stronger dollar and rising Brexit fears, it seems likely that recovery rallies in GBP/USD will tend to be short-lived. Resistance at 1.2150 is likely to cap recovery attempts.

The pair has already dropped below 1.2094 support, however, a consolidation seems to be taking place. There is still some potential for a small recovery, although the momentum is clearly to the downside.

GBP/USD traders should be mindful of headline news as it can trigger drastic moves. Especially in the US session today considering the general lack of liquidity.

Bottom Line

  • GBP/USD has fallen sharply lower to start the week. Several support areas have broken and the trend has clearly reversed lower.
  • Holiday-thinned trading in the US session sets up the potential for volatile swings in the currency pair.
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