GBP/USD Daily Forecast – Sterling Continues to Correct Lower

Johnson Fights to Keep Parliament Suspended

British Prime Minister Boris Johnson will defend his decision to prorogue parliament in court this week after it was ruled last Wednesday that the suspension was unlawful.

His opposition lost their first attempt to overthrow the decision as the High Court of England and Wales deemed the matter to be political. However, Scotland’s highest court ruled in favor of the opposition last Wednesday, leading to a further escalation to the Supreme Court.

Proceedings in the Supreme Court will start today and a decision is expected to be made on Thursday. The Prime Minister will be forced to recall Parliament if the ruling does not go his way.

Further, there has been some speculation that opposition will demand Johnson resign if it is deemed he has misled the Queen. Johnson had requested the suspension of parliament based on his intent to pass a new legislative agenda. However, the opposition argues that it was just a ploy to prevent parliament from interfering in his Brexit plans.

Technical Analysis

GBP/USD is on pace to post a second consecutive day of losses after reversing from resistance at the 1.2500 level. The decline appears to be taking the form of a bullish flag pattern, although an upside break is needed to confirm the theory.

The pair is approaching a critical support level at 1.2373. This level offered a hurdle last week, for much of the week, before an eventual breakout on Friday. I consider this level to be the ‘line in the sand’ for the pair in terms of a directional bias. While above it, the pair could continue to extend higher.

The level I’m watching in the session ahead is 1.2426. It has offered support and resistance over the last few sessions. A break above it would activate a bullish flag pattern. While below it, I anticipate the pair will try and test support at 1.2373.

Bottom Line

• GBP/USD is attempting to post a second day of losses.
• A break above 1.2426 activates a bullish flag which stands to encourage buyers.
• Major support resides at 1.2373.