GBP/USD Daily Forecast – Sterling Extends Losses Following Technical Break

Johnson Ignores Requests for his Resignation

Parliament reconvened on Wednesday and Johnson’s opponents called for his resignation after courts ruled he suspended parliament unlawfully.

The British PM brushed off the comments and invited his opponents to call a vote of no-confidence. Such a scenario would lead to an election which could work in Johnson favor. If he were to win the election, he might be able to bypass a recent law that was created to prevent a no-deal Brexit.

To be clear, the law does not entirely prevent a no-deal exit from happening. If a deal is not reached by October 19, a no-deal Brexit can still occur if parliament approves it.

While it doesn’t seem likely that parliament would approve an exit without a deal, Labour leader Jeremy Corbyn intends to meet with other opposition leaders later today to discuss strategies to ensure it doesn’t happen.

While ongoing Brexit developments will continue to impact the exchange rate, a stronger dollar is also weighing on GBP/USD. The US dollar index, which measures the greenback versus a basket of currencies, rallied sharply higher yesterday and is not too far from breaking to a multi-year high.

Technical Analysis

There are a few things in play that suggest GBP/USD has reversed trend at this stage.

First, the pair struggled at a major overhead resistance confluence last week. Specifically, the psychological 1.2500 handle was in play as well as the 20-week and 100-day moving averages.

After a failed rally above this confluence of resistance, the pair turned lower to break down from a rising trend channel. The channel dates back to a low posted on September 9 and the exchange rate broke lower from it yesterday.

Lastly, the pair is in a strong downtrend on the larger time frames. As there is a bit of momentum behind the current decline, I think most technical traders will expect that the pair has resumed in its broader downtrend.

Support at 1.2373 broke down today and acted as resistance on a small pullback around the European open. This level stands to continue blocking recovery rallies in the session ahead.

The next level of downside interest falls at 1.2296 as the price point acted as resistance earlier in the month.

Bottom Line

• GBP/USD appears to have resumed within its broader downtrend.
• Aside from Brexit developments, the dollar index is on the verge of a multi-year high, putting further pressure on GBP/USD.