Corona Virus
Stay Safe, FollowGuidance
Fetching Location Data…
Jignesh Davda

Politics and a Stronger Dollar

With GBP/USD turning lower over the past day or so, the question is what is driving the currency pair? Is it UK politics or just a stronger dollar?

In a debate between PM Boris Johnson and opposition Labour’s Corbyn yesterday, polls continued to favor Johnson, although by a small margin. Johnson’s stance is to deliver on the Brexit deal that was negotiated in October. Corbyn vows to let the public decide what the UK will do from here.

Either scenario involves further delays. Holding a referendum to let the public decide on the fate of Brexit could potentially take up to a year. On the other hand, Corbyn argued yesterday that even if a Brexit deal is made in January, trade negotiations are also likely to be a lengthy process.

It seems a bit unclear how much UK politics have impacted GBP/USD as the pair has carried a fairly strong inverse correlation with the US Dollar index (DXY) as of late. DXY bottomed out to start the week and has been gaining upward momentum since. Similarly, GBP/USD hit a fresh four-week high this week and has since pared gains.


Technical Analysis

In making those highs, GBP/USD broke upward from a declining trendline that originates from a peak posted in late October.

In yesterday’s forecast, I outlined a few different scenarios that could play out. One of them was a sell off that would see the pair printing a bearish engulfing candle on a daily chart. This is where we are now.

GBPUSD Daily Chart

The price action over the past 24-hours shows a lack of buying from the mentioned declining trendline. This is not encouraging for those taking the bullish side. At the same time, the trendline has not been breached to a point where I would consider the early-week breakout invalidated.

This levels us somewhere in the middle, without a clear signal. But I do think price action will clarify the outlook later today as the minutes from the last Fed meeting are scheduled for release. This stands to introduce a bit of volatility which could clarify the near-term bias for the pair.

GBPUSD 4-Hour Chart

For now, the pair trades at fairly important support. this comes from the 1.2900 handle as well as the lower bound of a trend channel that has encompassed price action since the start of the week.

Bottom Line

  • GBP/USD has given back a bulk of its weekly gain as the dollar is recovering.
  • An early week bullish breakout is on the verge of being invalidated. In this context, the reaction following the meeting minutes is important.
  • A push back above 1.2940 would tend to encourage bulls once again.
Don't miss a thing!
Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Trade With A Regulated Broker

  • Your capital is at risk
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.