GBP/USD Daily Forecast – Buyers Defend Psychological 1.3000 Handle

UK GDP Rises 0.4% in Q3

The Office for National Statistics reported a rise in GDP of 0.4% in the third quarter, revised up from 0.3% in an earlier estimate.

The data shows improvement after a decline of 0.2% in GDP during the second quarter. GBP/USD rallied slightly on the back of the release although the recovery was not all that substantial compared to the fall the pair has seen in the week thus far.

Fears have a no-deal Brexit are the cause behind the decline in Sterling. Earlier in the week, UK PM Johnson said that there will be no further delays to Brexit. This implies that if trade agreements are not made by the end of 2020, the UK will leave without a deal.

Parliament meets later today to vote on the Withdrawal Agreement Bill. Once passed, the UK will be set to leave the European Union on January 31. At that point, there will be a transition period that lasts for the remainder of the year so that trade agreements can be made.

Much of the rally in Sterling since September is attributed to hopes that the UK will leave with a deal when it comes time. With the threat of a no-deal scenario, the British pound could decline further and wipe out a bulk of the recent gain.

Technical Analysis

The 1.3000 handle is a major level for GBP/USD and the pair is seen bouncing from it ahead of today’s Parliament vote.

This same area had held the pair lower from around the middle of October until an upside break finally materialized in early December.

The decline in GBP/USD this week has led to a bearish break of a rising trend channel that has encompassed price action since September. This sets a clear bearish tone for the pair, despite the already steep fall. The exchange rate would need to rally above 1.3145 to negate the bearish technical break.

Over the near-term, the pair might fall into a range as major support at 1.3000 might cause bears to ease. A break below the psychological level, however, could see the pair extended losses. The next area of interest to the downside falls at 1.2788.

Bottom Line

• GDP growth for the third quarter was revised up to 0.4%.
• Parliament meets today to vote on the Brexit bill. The bill is expected to contain a clause that prevents any further delays. This effectively puts a no-deal exit back on the table.