GBP/USD Daily Forecast – Sterling Rally Runs Into Resistance

Jeremy Corbyn to Step Down

UK Labour Party leader Jeremy Corbyn has announced he will step down after his election defeat by PM Boris Johnson. A vote will be held to determine who will take his place. Voting will take place between February 21 until April 2 and a special conference will be held on Saturday, April 4 to announce the new leader.

GBP/USD has had a wild ride as a result of the recent election and its implications on Brexit. The pair rallied to 1.3500 on the back of the election, a two-year high, but has since given back the gain. The pair currently trades where it was just ahead of election day.

A weaker dollar helped lift the exchange rate higher in the last week of December, although the greenback seems to have stalled out. The dollar index (DXY) has been trading within a range since the start of the month.

Later in the session today, the Institute for Supply Management will release its non-manufacturing index for December. The data release typically accompanies a volatile reaction in the markets.

Technical Analysis

GBP/USD started the session off on a strong note, but has since retreated as resistance at 1.3189 has capped the upside. This will continue to be an important level in the session ahead.

Recal that this same level triggered a reversal on the first trading day of the new year that resulted in a decline toward the 1.3050 area. This was despite a momentum-driven rally toward the level.

Over the near-term, a range break should clarify the directional bias from here. A bullish break above the mentioned resistance area could see the pair gunning for the late December near 1.3300. On the other hand, a break below 1.3145, a support level that held the pair higher today, would signal a bearish reversal. Ahead of it, support is found at 1.3157 which is a level that has acted as both support and resistance over the last week.

Bottom Line

• GBP/USD is easing lower after testing major resistance.
• A breakout from today’s range between 1.3145 to 1.3189 should set the tone for a near-term directional bias.