Jignesh Davda
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No-Deal Brexit Fears to Continue Driving Sterling

The GBP/USD sell-off appears to have subsided, at least for now, as the currency pair has found some support. The pair is held up higher by the same area that had held it lower from the second half of October until the first week of December.

The catalyst for the downturn in the pound to dollar exchange rate last week was the renewal of fears of a no-deal Brexit. Johnson has put a no-deal scenario back on the table after insisting that there won’t be any more extensions to the EU exit.

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GBP/USD might see a relief rally as the initial shock of Johnson’s latest move starts to wear, and with technical support in play. However, as long as the markets view a no-deal scenario as a potential outcome, Sterling will tend to remain under pressure.

With most of the major banks on holiday this week, GBP/USD volatility is likely to decline quite a bit. A plausible scenario might be for a continued range above the psychological 1.3000 handle.

In terms of data releases, the latest US durable goods orders report will be released later in the day. Analysts are expecting a rise of 0.2% in orders for November.


Technical Analysis

Support at 1.2989 in GBP/USD was previous resistance that held it lower from the middle of October until the pair finally broke higher early this month. Considering the proximity to the psychological 1.3000 handle, this is a fairly important support area.

GBPUSD Daily Chart

But at the same time, the pair has not seen a lot of buying pressure from it. GBP/USD first approached the level on Thursday. It has yet to post a positive day to snap the prior four consecutive day losing streak.

There is further support from the 50-day moving average just below 1.2989 support. The indicator currently comes in at 1.2956.

The outlook for GBP/USD is bearish considering that the pair broke down from a rising trend channel that had encompassed price action since September. If the pair manages to close the day above or near Thursday’s open of 1.3078, it could signal some further upside potential. But in the absence of a notable recovery today, the most likely scenario would be for a tight range just above the 1.3000 level.

Bottom Line

  • GBP/USD buyers are holding the pair above 1.3000 support.
  • Volatility is likely to slow because of the holidays. A range above 1.3000 appears to be the most likely scenario for the pair.
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