Fears Of Hard Brexit Continue To Put Pressure On British Pound
GBP/USD is trying to stabilize near 1.2800 after yesterday’s major sell-off which was caused by fears of disorderly Brexit.
Previously, UK decided to make changes to Brexit Withdrawal Agreement that would break the international law “in a limited way”.
EU took a firm stance and told Britain that it should abandon its plans to break the treaty that was signed less than one year ago.
In addition, EU signaled that breaking the Brexit Withdrawal Agreement will lead to a no-deal Brexit.
UK insisted that it was still commited to the agreement but needed to clarify certain points with the main focus on preserving the 1998 Northern Irish peace deal.
Both sides have clearly stepped up their preparations for a hard Brexit, and financial markets have started to price in this scenario.
Meanwhile, UK has just provided Industrial Production and Manufacturing Production reports for July. Industrial Production increased by 5.2% on a month-over-month basis compared to analyst consensus which called for growth of 4%. On a year-over-year basis, Industrial Production declined by 7.8%.
Manufacturing Production increased by 6.3% month-over-month but remained under pressure on a year-over-year basis, falling by 9.4%.
While the economic data was better than analyst expectations, it may have little impact on GBP/USD as traders are preoccupied with the twists of the Brexit story.
GBP/USD is currently trying to gain some upside momentum after a serious sell-off. This sell-off was very fast so there are significant gaps between levels.
The nearest resistance level for GBP/USD is located at 1.2880. In case GBP/USD manages to settle below this level, it will head towards the next resistance at 1.2980. A move above this resistance will open the way to the test of the next resistance level at 1.3020.
On the support side, the nearest support level for GBP/USD is located at the recent lows at 1.2775. If GBP/USD moves below this level, it will decline towards the next support at 1.2750. In case GBP/USD does not receive enough support at 1.2750, the road to the next support at 1.2650 will be open.
Vladimir is an independent trader and analyst with over 10 years of experience in the financial markets. He is a specialist in stocks, futures, Forex, indices, and commodities areas using long-term positional trading and swing trading.