GBP/USD Daily Forecast – British Pound Eases Lower From Resistance

After a volatile period last week, sellers have blocked the rally in GBP/USD as some resistance is in play.
Jignesh Davda

Brexit – What’s Next?

Last week was a volatile one for GBP/USD, but the wild swings in the currency pair seem to have died down as parliament is suspended until October 14.

Johnson made a second attempt to call an early election this week but was once again denied. The British Prime Minister is trying everything he can to keep a no-deal option on the table but is failing to progress.

Last week, lawmakers passed a bill that blocks a no-deal Brexit. This bill became law this week, forcing Johnson to seek a delay to the October 31 deadline if he is unable to strike a deal at the EU summit taking place on October 17 and 18.

The British PM continues to oppose the new law, and insist that he will not ask for an extension. However, he is required to, by law. The only option for a no-deal scenario by the end of October at this stage is if parliament approves it. This seems like a very unlikely scenario.

GBP/USD rallied sharply last week as market participants viewed the recent developments as decreasing the odds of a no-deal scenario. However, upside momentum seems to be fading a bit at this stage.

Economic data out of the United Kingdom continues to signal strength in the economy. Yesterday, UK GDP came in ahead of expectations, remaining flat in the three months to July. Today, job figures surprised to the upside. The unemployment rate ticked down to 3.8% in July, ahead of the analyst estimate and prior reading of 3.9%. The number of people claiming unemployment in August eased lower and data from July was revised down slightly.

Technical Analysis

Resistance at 1.2373 has blocked rallies on several attempts since reaching the level yesterday. The pair made one more attempt at it in the early day today and fell under pressure after failing to climb above it.

A bearish candlestick pattern has printed on an hourly chart which could keep recoveries short-lived in the session ahead. At the same time, the 4-hour chart shows a range and is not indicating much downside pressure at this stage.

GBPUSD 4-Hour Chart

I think we might see a bit of a pullback in GBP/USD. The dollar is also catching a bit of a bid in the early day which leads me to believe a correction might play out in the currency pair.

At the same time, declines are likely to be met with buyers. I think recent Brexit developments have removed the catalyst that was driving Sterling lower for the last few months. The first area of support comes in at 1.2300.

Bottom Line

  • The rally in GBP/USD has fizzled with notable resistance at 1.2373 offering a hurdle in the early week.
  • Volatility is likely to slow with parliament now in recess.
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