GBP/USD Daily Forecast – Sterling Consolidates Near Weekly Lows

Sterling Volatility Likely to Jump Higher Next Week

British Prime Minister Boris Johnson dominated headlines this past week as he successfully prorogued Parliament. The initial reaction in the markets was a sharp move lower in Sterling, although the currency has consolidated since.

Volatility is likely to increase yet again next week. The Queen approved the suspension to take place sometime between the 9th and 12th of September. This means that MP’s have an opportunity to take action between the 3rd until the suspension takes place. It does not seem likely that they will sit idle, and there are several avenues they might take to counter the PM’s latest move.

Parliament might try and ramp up their efforts to block a no-deal Brexit with new time constraints in place. There has also been increasing talks of trying to extend the October 31st deadline. Sterling’s should be quite sensitive to whatever action Parliament might take.

Whether Johnson is bluffing or really willing to take the UK out of the EU without a deal remains to be seen. Supporters of the Prime Minister will see this week a victory, but Johnson will need to continue with his efforts so that his stance is not seen as a bluff. There is a high degree of uncertainty on what he might do next, and this will tend to suppress any near-term recovery attempts in GBP/USD.

Technical Analysis

From a technical perspective, GBP/USD is holding on to support by a thread. There is a rising trendline which originates from a low posted on August 11th. While the exchange trades slightly above it, today’s price action shows reluctance in buyers to hold the pair above it.

Further support is found at 1.2153 which marks a horizontal level. The 100 moving average is not far from it to create a confluence. I think this is the line in the sand in terms of a near-term direction bias. A drop below would certainly discourage buyers. At the same time, GBP/USD bears would view it as a signal that he three-week recovery has ended.

Brexit uncertainties stand to keep recoveries short-lived. For the session ahead, I see resistance at 1.2213.

Bottom Line

• GBP/USD is on pace for a weekly loss to end a two-week winning streak.
• A support confluence at 1.2153 is pivotal and stands to guide technical traders on a near-term bias.