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GBP/USD Daily Forecast – Sterling Hangs on to Support by a Thread

GBP/USD has fallen into a consolidation as a support confluence has drawn buyers. However, the pair has struggled to make a meaningful recovery from the area.
Jignesh Davda
GBP/USD

Brexit Headlines to Drive the Pair in Early Week

Brexit headlines stand to drive volatility to GBP/USD in the week ahead as Prime Minister Johnson and his team work towards an exit deal.

The major hold up in getting a deal done is the disagreement between the UK and EU on the Irish backstop. Johnson has been criticized several times for not bringing forth suggestions or ideas to get around the issue.

But the PM intends to do exactly that. Johnson said that he has ideas to get around the issue and plans to present a proposal to EU officials for an amended Brexit agreement.

Johnson was not clear about when such an agreement will be put forth to EU officials but said that he wanted to secure an agreement at the EU summit which takes places between October 17 and 18.

Concerns over a bumpy Brexit have caused the housing market to cool as Nationwide Building Society data shows house prices have been falling since the 2016 referendum. Nationwide’s house price index was reported to decline by 0.2% in September while analysts were expecting a rise of 0.1%.

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Technical Analysis

GBP/USD tested a support confluence near 1.2287 on Friday and a range has played out since then. The confluence consists of a horizontal level and the 200 moving average on a 4-hour chart.

The pair attempted to recover from support yesterday but sellers stepped in slightly ahead of 1.2350. This resulted in a sharp decline back towards the support area.

GBPUSD 4-Hour Chart

I mentioned in yesterday’s forecast that there is some potential for a recovery from this level, although the general lack of strength since Friday signals a lower probability of that happening.

At the same time, I wouldn’t look to chase the pair lower here. Rather, I’m looking to sell rallies as the pair appears to have reversed after a failed break above 1.2500.

Bottom Line

  • Sensitivity to Brexit headlines stands to rise as the EU summit is fast approaching.
  • GBP/USD has fallen into a range as a support confluence at 1.2287 has held the decline thus far.
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