GBP/USD Daily Forecast – Sterling Struggles to Hold on to Yesterday’s Gain

GBP/USD rallied sharply higher on Monday on political developments in the UK but is struggling to hold on to the gains as the pair is strongly offered in early day trading on Tuesday.
Jignesh Davda

Trade War and UK Politics Pulling GBP/USD in Different Directions

While the positive developments in the trade war between the US and China have resulted in a bullish dollar, GBP/USD has been underpinned in the early week as investors are hopeful a smooth Brexit will materialize in January.

Boosting optimism was an unexpected announcement from Brexit Party Leader Nigel Farage who said on Monday that he will not contest the 317 seats won by Theresa May. He will instead focus on unseating those standing in the way of a smooth EU exit.

The declaration is a major victory for Prime Minister Boris Johnson. It puts him one step closer to winning a majority at the election to be held on December 12.

Sterling shot up higher on the announcement, gaining roughly 1% against the dollar. But sellers have defended a technical resistance area and the pound to dollar exchange rate has given up over half of the gain.

Weighing on GBP/USD are the positive developments in the trade war between the US and China. Later today, a trade update is expected from US President Trump as he is scheduled to deliver a speech in New York. This could see GBP/USD further unwind its recent gain, depending of course on what Trump says.

Technical Analysis

The rally in GBP/USD was capped by a confluence of the 50 and 100-period moving average on a 4-hour chart. The pair is seeing a bit of pressure in the early day, although I suspect the markets may take a breather until hearing what Trump has to say later in the day.

GBPUSD 4-Hour Chart

In yesterday’s forecast, I discussed how a rally toward 1.2880 might offer a good opportunity for bears. The pair is showing strong selling pressure from the area, however, yesterday’s upward momentum was quite strong. It resulted in a bullish reversal candlestick pattern on a daily chart and therefore today’s daily close will be important.

The pair is on pace to reverse a bulk of the recent gain which would invalidate the bullish pattern. I think it will ultimately depend on how Trump’s speech goes.

A key level to keep an eye out on today is the 1.2800 level. This is a level that held the pair up in late October. As well, the exchange rate traded close to it ahead of Farage’s announcement yesterday.

Bottom Line

  • GBP/USD is boosted by positive UK political developments, although it has given up a bulk of the recent gain.
  • US President will speak later today in New York. A trade update is expected and a volatile reaction is likely in the markets.
Don't miss a thing!
Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.