GBP/USD Daily Forecast – Sterling Pares Gains From Yesterday’s Breakout

Boris Johnson Unexpectedly Makes Progress

Before the UK Prime Minister left London at the start of the week to visit Germany and France, few expected him to move forward Brexit talks. EU officials had repeatedly said that they are not willing to open up the Withdrawal agreement, creating somewhat of an impasse.

Johnson defied odds by gaining support from German Chancellor Angela Merkel which boosted the British pound. Merkel was optimistic that a solution to the backstop can be found by the Brexit deadline. A solution that will keep the Good Friday agreement and ensure the integrity of the single market.

He wasn’t nearly as successful when he spoke with French President Macron. Officials from Macron’s office initially commented that the meeting went well and was productive. However, Macron expressed doubt in the press conference that the two parties will come to an agreement. Especially within the 30-day time frame suggested by Merkel.

The British pound rallied against all of its counterparts yesterday, resulting in technical breaks in several major Sterling pairs. GBP/USD broke above an important resistance level found at 1.2190. The pair has given back just over half of the gain from the sudden move higher. However, it remains above the resistance level now turned support.

Technical Analysis

In the session ahead, bulls will want to keep the pair above 1.2190 to maintain the upward momentum from yesterday.

GBP/USD turned lower yesterday ahead of resistance from the 200 moving average on a 4-hour chart. This indicator falls close to horizontal resistance at 1.2300 to create a bit of a confluence.

I expect that rallies in the session ahead will struggle to overcome the resistance area.

There might not be any more Brexit headlines as the end of the week is near. However, the pair could still see some volatility as Fed Chair Powell is scheduled to speak later today. His latest views on US monetary policy stand to trigger a volatile reaction across the dollar pairs.

Bottom Line

• 1.2190 is now support and seen as a key level in the session ahead.
• If the pair manages to extend above yesterday’s top, there is resistance in play around 1.2280-1.2300.