GBP/USD Daily Forecast – Sterling Breaks Higher on Brexit Deal Optimism

The British pound is set to post the largest weekly gain among its major currency counterparts as progress towards an EU exit continues to head in a positive direction.
Jignesh Davda

GBP/USD Breaches Critical 1.2500 Level

Fears of a no-deal Brexit have lessened significantly in the month thus far, leading to a rally in GBP/USD from below 1.2000 to above the 1.2500 handle today.

The rally began after UK Prime Minister Boris Johnson was met with a series of defeats that blocked his plans for an EU exit. Johnson is known for his stance to deliver an exit even if a deal is not in place. This viewpoint led to a sell-off in Sterling that began before he was officially elected.

The tables have turned quite a bit over the last few weeks. Aside from lessening ‘no-deal’ fears, there is optimism that the UK will leave by the October 31 deadline with a deal in place.

Leader of the Northern Irish Democratic Unionist Party (DUP) Arlene Foster came up with a unique solution on Thursday as a way to get around the main issue holding up a deal – the Irish Backstop.

Irish Foreign Minister Simon Coveney warned there is still a wide gap in reaching a new deal. Although he agreed that there have been improvements, commenting that the “mood music” has improved. He added that everyone wanted a deal and a no-deal would be particularly devastating for Ireland and Britain.

Technical Analysis

Similar to last week, GBP/USD consolidated in a range for most of the week until finally breaking higher late in the week.

The upside break for GBP/USD is quite significant considering the overwhelming amount of resistance that was in place.

GBPUSD 4-Hour Chart

Not only was there resistance from the 1.2500 level, the 20-week and 100-day moving averages were also in play to hold the pair lower in the first half of the week.

The pair is under a bit of pressure in early day trading today and the daily close will be important. If the pair manages to sustain the break, I suspect we could see some renewed upside pressure next week.

The main support to watch from comes from a rising trendline that originates from a low posted on the 12th.

Bottom Line

  • GBP/USD has made a bullish technical break above important support to reassert the uptrend.
  • Optimism has been growing over a Brexit deal which supports further gains in the pair.
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