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

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.

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.