GBP/USD Daily Forecast – Investors Await Response on Brexit Extension

UK Awaits Decision on Brexit Extension

UK Prime Minister Johnson had a big win this week, passing through his EU Withdrawal Bill at the second reading, however, his win was short-lived. Parliament voted down his second motion for an expedited timetable.

The UK is now left in a position where time is running out to complete preparations for an exit. It should be mentioned that the actual Brexit deal negotiated with the EU last week has not been voted on as of yet. Although most analysts believe Johnson has the votes.

The British PM has decided to suspend further deliberations on the bill until the EU responds back to the extension request. European Council Donald Tusk is supporting a three-month extension to the end of January and is urging others to do so as well.

French President Emmanuel Macron does not seem to be on board. He is in strong support of a shorter two week technical extension that provides the UK the time it needs to push the current deal through.

Macron may be persuaded if he is assured there will be a change in the political landscape. Johnson has already said that he will call an election if given a lengthy extension.

Johnson might be successful in an election considering he’s gained some popularity as of late with his efforts. Nevertheless, I think if it got to the point where Brexit is delayed and an election was to take place that Sterling would be susceptible to wiping out a bulk of its recent gains.

Technical Analysis

The psychological 1.3000 handle has proven to be a major hurdle this week. Further, in early day trading, the pair appears to be holding below a horizontal level at 1.2924.

My view has not changed from yesterday’s daily forecast where I was calling for a move toward 1.2738 support. The price point reflects a horizontal level that is in the proximity of the 200-day moving average.

In the absence of news, I expect that the currency pair could continue to edge lower. The next main catalyst should be the EU’s response to the extension request. Depending on the outcome, that could change sentiment. In the meantime, I’m still looking for some more downside.

Bottom Line

• The United Kingdom awaits a response from EU officials on their extension request.
• A delay to the original October 31 deadline appears inevitable.
• GBP/USD has been edging lower after a failed attempt at 1.3000. Major support resides at 1.2738, near the 200 DMA.