GBP/USD Daily Forecast – Sterling Showing Signs of a Recovery

EU Officials dismiss Johnson’s Proposal

Johnson’s new Brexit plan, which he made sound promising, turned out to be a dud as EU officials widely dismissed his proposal on Thursday.

Similar to previous communications from Brussels, officials felt it did not have a clear solution to deal with customs and disagreed with the idea of a hard border in Ireland.

The proposal was seen more as a starting point for discussions which is worrying as time is running out with the EU summit only two weeks from now.

If Johnson is unable to secure a deadline by the summit, a recently passed law forces him to request an extension to the October 31 deadline. The exception is if he can convince parliament to leave without a deal in place which seems unlikely.

UK Services Sector Activity Contracts for First Time in 3 Years

The services sector, which accounts for the largest part of the economy, was reported to contract in September, signaling worries of a recession.

IHS Markit reported jobs in the service sector were cut last month at the fastest pace in nine years. Further, the Future Activity index declined to a more than three year low, weakening expectations for activity.

Technical Analysis

Despite the poor economic data and disappointing Brexit progress, GBP/USD is catching a bit of a bid on Thursday. The pair is benefiting from some dollar weakness which has led to a two-day recovery in EUR/USD.

For most of the week, I’ve been focused on support at 1.2287.  This level confluences with the 200 moving average on a 4-hour chart. While the pair dipped below it earlier in the week, it has managed to climb above it at this stage.

Further, GBP/USD has also broken upward from a downtrend channel. This signals the potential for a bit of a recovery.

I’m looking for a rally towards resistance at 1.2373. The 20-day moving average has converged towards the level to create a confluence. For this reason, I think this is an area that will hold sellers.

Bottom Line

• Johnson’s proposal still needs a lot of work and time is running out in reaching a Brexit agreement.
• GBP/USD has held above important support and there’s potential for a recovery.
• A horizontal level at 1.2373 carries confluence with the 20 DMA to create a resistance confluence for recoveries.