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GBP/USD Daily Forecast – Sterling Little Changed on Brexit Extension Announcement

By:
Jignesh Davda
Updated: Oct 28, 2019, 10:31 UTC

European Council President Donald Tusk tweeted that the EU27 has agreed on the UK's request for an extension until January 31, 2020.

GBP/USD

Brexit Delayed for a Third Time

Donald Tusk has confirmed via a tweet that a Brexit extension has been granted, the formal text should follow. This text should indicate that the EU will not negotiate any further on the deal and that the UK can leave earlier than the stipulated deadline.

The extension removes concerns of a no-deal Brexit as the UK was scheduled to leave the EU on Thursday. Although there was little reason to think the EU would deny an extension to force a no-deal Brexit.

The bigger concern now is if the UK holds an election which is what PM Boris Johnson is pushing for. If the opposition wins a majority in a new election, it seems that Brexit will likely get pushed back even further beyond the January deadline.

A vote will take place later today on whether the UK will have an election in December and the outcome stands to have an impact on the near-term trend for GBP/USD.

I suspect an election might harm the exchange rate as the markets are somewhat positioned for an orderly exit. On the other hand, if the UK does not hold an election, there is still some potential for an exit ahead of the new January deadline.

Technical Analysis

There have been signs of a turn in GBP/USD since last week. For now, this recent downtrend remains intact.

GBPUSD 4-Hour Chart

I’m looking for a decline towards support at 1.2738 which carries confluence with the 200-day moving average.

For the session ahead, some resistance is seen at 1.2846. Further resistance is found from the upper bound of a declining trend channel that has encompassed price action from the late October high. A break above it would signal that the pair has reverted to the bullish trend that has dominated through the month.

Bottom Line

  • The UK has gotten an extension on the Brexit deadline to the end of January.
  • Parliament votes later today if they should have an election. The outcome could trigger a volatile response in the exchange rate.

About the Author

Jignesh has 8 years of expirience in the markets, he provides his analysis as well as trade suggestions to money managers and often consults banks and veteran traders on his view of the market.

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