GBP/USD Daily Forecast – Pound Sold Ahead of Announcement of New Leader

The British pound is trying to post a third consecutive day of losses against the greenback. The pair has been weighed by a stronger dollar and ongoing Brexit concerns
Jignesh Davda
GBP/USD

Borish Johnson Likely to be Declared UK’s new Prime Minister

The vote is in and it is largely expected that Johnson will be the newly elected leader of Britain’s governing conservative party. An announcement should be made today, likely ahead of the New York open.

The distinct difference between Johnson and soon to be former PM Theresa May is their approach to Brexit. Specifically, Johnson has pledged an EU exit, no matter what it takes.

This means a no-deal Brexit is on the table. That is if an agreement is not reached by Halloween. The markets have reacted by selling off Sterling, and as a result, the British pound remains the weakest major currency in July thus far.

Another driver for further weakness in GBP/USD is a stronger dollar. The trade-weighted dollar index (DXY) is set to post a third day of gains and is near a two-week high.

With the end of the month nearing, the monthly chart for DXY has come into focus. Currently, a horizontal level at 97.60 has held the index lower since the first approach back in late 2018. DXY is not too far away from the level and looks poised to post a bullish engulfing candle on a monthly chart.

Technical Analysis

GBP/USD was briefly held higher by support near 1.2453 yesterday. However, sellers stepped in on a rally to the 1.2500 handle. Since then, there has been fairly strong downside pressure.

GBPUSD 4-Hour Chart

The next area of interest to the downside falls at 1.2400. I’ve marked a horizontal level at 1.2406 which reflects the lowest daily close in July thus far.

Beyond that, I think there is some potential for a retest of this year’s spike low at 1.2370. To the upside, I see resistance at 1.2453 for the session ahead. This level had held the pair higher on a dip in the first half of the month.

Bottom Line

  • UK’s new PM will be announced. This will most likely happen ahead of the North American open.
  • GBP/USD remains under pressure, 1.2400 is the next area to focus on to the downside
  • Upside resistance is seen at 1.2453. I think the level will hold sellers in today’s session, if we get there.

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