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GBP/USD Daily Price Forecast – GBP/USD Opens Flat but Looks Positive in near Term as Brexit Pressure is Off Market for Shortwhile

By:
Colin First
Published: Oct 22, 2018, 07:00 UTC

Brexit talks are continuing to go nowhere fast, and hope-inspiring words are beginning to run thin for the UK's political upper crust.

GBPUSD Monday

GBP/USD has been moving in a tight consolidative range on Asian Monday’s open in quiet holiday markets with NZ out for Labor day and an air of, the quiet before the storm with a busy schedule ahead this week. GBP/USD is like playing Russian roulette at the moment, albeit at least with some confidence that the downside is limited by the rising trend line support. We have not seen any major break troughs in Brexit as yet, but there have been some market moving headlines that have made for spikes of around a cent on a session, be it Asia, Europe or NY. The latest spike came in last Friday’s close in NY where the pair traveled from 1.13040 to 1.3105 on built-up speculation that had been mounting in the press that PM May was about to negotiate an extended transitory period that would leave Britain subject to EU rules and policies until December 31 2021. That would include remaining under the jurisdiction of the European Court of Justice and is infuriating the Brexiteers in May’s party – although appeasing the sterling bull’s focused on a clearing through the trees of Brexit that would help the BoE act accordingly should the economy warrant an interest rate hike.

British Pound Remains Bearish In Long Term Despite Occasional Bullish Spikes Influenced by Headlines

The rationale for considering a longer transition period is that it would provide the UK and the EU with more time to negotiate an agreement governing their future relationship and this, in turn, would enable the BoE to focus on the matter at hand when it comes to navigating the economy through the transition period – Economic data will be scrutinized with a view to hike interest rates when appropriate. As of writing this article, the GBPUSD pair is trading at 1.3089 up 0.07% on the day. However, the pound is not into the clearing yet. PM May will face opposition from the Brexiteers in her Tory Government, but at least she will have an opportunity to reassure her backbench opponents and the DUP that an agreement with the EU can more realistically be put in place during the transition period such that the backstop arrangements over the Irish border will never have to be implemented. Monday sees a very thin start to the week, and traders will be keeping their eyes turned to the meatier data docket due in the latter half of this trading week, though headlines will be sure to drive broader market sentiment for the next few days as political tensions continue to keep bulls off-balance.

Despite the odd bullish push here and there, the Cable remains in a fairly bearish technical position from a technical standpoint. The GBP/USD pair finished modestly lower for a second consecutive week, maintaining a neutral stance according to the daily chart, where it closed below a flat 20 DMA and as technical indicators hover around their midlines without clear directional strength. Shorter term, and according to the 4 hours chart, the pair is bearish, as it failed to recover ground above a flat 200 EMA, while an early rally was rejected from selling interest around a bearish 20 SMA. Furthermore, technical indicators in this last chart have lost upward strength well into negative ground and after correcting oversold conditions. A break below 1.3010 could result in a bearish continuation toward 1.2880 during the upcoming sessions Expected support and resistance for the pair are at 1.3010, 1.2980, 1.2945 and 1.3085, 1.3130, 1.3175 respectively.

 

About the Author

Colin specializes in developing trading strategies and analyze financial instruments both technically and fundamentally. Colin holds a Bachelor of Engineering From Milwaukee University.

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