GBP/USD Daily Forecast – Sterling Continues to Hold Above Major Support

No-Deal Brexit Talks Negative for Sterling

Finance Minister Sajid Javid said earlier today that the United Kingdom will leave EU by the end of the month, even if it means without a deal.

Javid’s words are similar to British Prime Minister Boris Johnson whose language has not changed despite a law that forces him to request an extension if a deal is not reached by the end of the EU summit.

The big question is how they can fulfill this promise as a law was recently created to prevent exactly such a scenario. The only way to get around this law is to have parliament vote for a no-deal, which seems unlikely.

Javid hinted that there might be another way but failed to provide details. Similarly, Johnson has not provided details on the same issue either. Further, he has not come up with a clear method to settle the disagreement on the Irish backstop which is the main holdup.

For most of the month, Sterling has recovered higher as investors saw the odds of a no-deal scenario declining. If the prospects of a no-deal scenario gains traction, the currency is likely to once again come under pressure. However, I think there should be more substance behind such statements for this to happen. Specifically, how they will get around the recently implemented law.

Technical Analysis

GBP/USD reversed lower last week after a failed break above the 1.2500 handle. There has been momentum behind the decline, however, buyers have capped the downside at this stage.

The technical support that has drawn buyers includes a horizontal level and the 200 moving average on a 4-hour chart. The horizontal level at 1.2287 was major resistance in late August and provided support earlier this month.

I wouldn’t be surprised to see GBP/USD bounce a bit and try and retest resistance at 1.2373. That level has been well respected as of late and falls near the 20-day moving average.

In the event we fail to hold higher here, the next area of downside interest comes in at 1.2189.

Bottom Line

• GBP/USD is holding above important support and there is potential for a bounce higher.
• A possible upside target is a horizontal level at 1.2373 which confluences with the 20 DMA.