GBP/USD Daily Forecast – Technical Outlook Points to Recovery Potential

Brexit Continues To Be The Primary Driver

The British pound continues to be the weakest major currency in the month thus far, despite the relief rally late last week. Much of this can be attributed to Brexit developments. As such, related headlines are likely to continue providing a catalyst for the next move in the currency pair.

Election results announced ahead of the European open indicated that the newly formed Brexit party, led by Nigel Farage, has won a majority of the EU seats allocated to the United Kingdom. Farage has been demanding a seat at the Brexit negotiations table after Theresa May announced Friday that she will be resigning on June 7^th. His stance on Brexit is that the UK should leave the EU by October 31 by all means necessary – even with a ‘no deal’ if need be.

Recent Technical Developments suggest GBP/USD Has Reversed Course, At Least in the Near-Term

Although the predominant trend in GBP/USD remains to the downside, technical developments late last week tell me that perhaps a near-term bottom is in. On a daily chart, a morning star candle has printed which is a bullish reversal pattern. The pattern is on the chart below.

What provides more conviction that we could move a bit higher from here is a channel break on an hourly chart. The chart below shows a descending channel has contained price action for most of the month. GBP/USD tested the upper bound of the channel on news of Theresa May’s intention to resign on Friday. Eventually, during North American trading, a bullish break above the channel materialized. I do see some minor resistance coming into play at 1.2752 going into European trading. As well, the 200-period hourly moving average comes into play.

Zooming down lower into the 15-minute time frame there is some further resistance.  Specifically, from a rising channel that originates from last week’s low.

Considering that it’s a bank holiday in the UK and United States today, I expect a drop in volatility.  Actually, there really isn’t anything that I think can have a significant impact on the pair until Thursday. GDP figures will be released that day from the US.   Of course, as mentioned, any type of Brexit headline stands to move the pair.

Considering the bank holiday, a short from resistance at 1.2752 might make sense as the pair could fall into a bit of a range. I’m focused on trying to get long from a lower level. Strong support is near the bottom of the rising channel. It currently confluences with a stronger horizontal level at 1.2677.