GBP/USD Daily Forecast – Sterling Drops as Johnson Seeks Parliament Suspension

Johnson Reignites No-Deal Brexit Fears

Sterling fell sharply in the early day after news sources indicated that Johnson was looking to delay the return of the House of Commons from recess.

Parliament was scheduled to return from summer recess on September 3rd. A conference recess is then scheduled to take place from the 14th of September until the 9th of October. The British Prime Minister wants to close the two-week gap and prevent Parliament from returning to boost his chances of delivering an EU exit.

There have been talks of a no-confidence vote and delaying the Parliament’s return would help to prevent such a vote taking place. This is considering that the withdrawal deadline is at the end of October.

Perhaps Johnson feels that his threat of a no-deal Brexit will carry more weight without Parliament undermining his actions. Nevertheless, the PM has spooked markets and Sterling has reacted accordingly.

Technical Analysis

GBP/USD has been recovering higher for the past two weeks on the view that the markets may have been too aggressive in pricing in a no-deal Brexit. Today’s news poses a threat to the recovery, although the technical bullish outlook remains intact.

A rising trendline that originates from the low in GBP/USD from around the middle of the month has held the decline in the pair thus far. There is also a horizontal level near the trendline at 1.2153 to create a bit of a confluence.

I think that most bullish technical traders will abandon their views if we get below this support area. There is some risk trading GBP/USD to the upside considering the broader trend after all.

While above it, there is some potential for the pair to remain within the bullish recovery. However, it will probably require a positive development on the fundamental side of things.

Bottom Line

• Johnson has reignited Brexit fears by seeking to delay parliament in returning from recess.
• The bullish technical outlook remains intact, a break below 1.2153 would tend to shift the directional bias among technical traders.