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Jignesh Davda

Johnson to Discuss Brexit with French President Macron

UK Prime Minister Boris Johnson is visiting EU officials this week in hopes of making progress on Brexit talks which appear to be at an impasse.

Johson spoke to German Chancellor Angela Merkel who offered some options that may move them closer to a deal. This issue at hand is that the UK PM wants to scrap the withdrawal agreement made by his predecessor and start fresh. His main focus is on the Irish backstop. EU officials have no intention of revising Theresa May’s withdrawal agreement.

Merkel’s suggestions on how they may overcome the Irish backstop issue encouraged GBP/USD bulls. However, Macron is expected to show a firm stance on the matter. He commented earlier this week that the EU is not willing to open up discussion on the already agreed upon withdrawal agreement. He is also not likely to grant an extension.

From the looks of it, Johnson has his work cut out for him. Sterling should be sensitive to any headline news related to the meeting with Macron in the session ahead.

Aside from Brexit matters, US monetary policy stands to influence GBP/USD. Fed meeting minutes which were released yesterday showed that there was clear division among Fed members. Some members did not want to cut while some were arguing for a half-point cut. Views on the inflation outlook differed quite a bit as well. One aspect that the minutes clarified was that the July move was an insurance cut. The minutes indicated that one of the three reasons for reducing the interest rate was that it “would be a prudent step from a risk-management perspective.”


Technical Analysis

A dip lower in GBP/USD in early day trading today was once again bid from a rising trendline that extends back to the August 11th low.

The pair struggled to overcome resistance at 1.2190 with sellers stepping in slightly ahead of the level. With the rising trendline converging toward the horizontal level, a break appears imminent.

GBPUSD 4-Hour Chart

The pair has now scaled above its 100 moving average on a 4-hour chart for the first time since June. Combined with the hold above rising trendline support suggests the bullish recovery remains in play.

To the downside, 1.2094 remains critical support. If the pair were to fall below it, I would assume the correction higher since last week has ended.

Bottom Line

  • We might see a breakout in GBP/USD as the range is narrowing.
  • The bias is to the upside considering the recent upward trend, hold of rising trendline support, and move above the 100 MA on a 4-Hour chart.
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