Renewed Brexit optimism keeps the GBP buoyed, although gains may be capped by risk-aversion.
The GBP/USD pair looks to extend its Asian consolidative mode into European session, as a sense of caution prevails among investors, heading into a fresh round of Brexit talks between the UK and European Union (EU) which is scheduled to occur later today. Markets refrain from placing any directional bet on the pound, as they believe the stand-off between the UK and EU over the Brexit talks could continue, as the EU’s Chief Brexit Negotiator Barnier and the British Brexit Secretary Raab meet to bring in further progress on the Brexit talks. Moreover, re-ignition of the US-China trade tensions combined with the sell-off in the Emerging Markets (EM) currencies boost the demand for the US dollar at the expense of the higher-yielding assets such as the GBP. As of writing this article, GBPUSD pair was trading at 1.3022 up 0.06% on the day.
The greenback, which tends to attract safe haven bids in times of market turmoil and political tensions, drew its latest swell of support as investors braced for the next round of the U.S.-China trade conflict. Bloomberg News reported on Thursday that U.S. President Donald Trump is prepared to quickly ramp up a trade war with China and has told aides he is ready to impose tariffs on $200 billion more in Chinese imports as soon as a public comment period on the plan ends next week. The ongoing trend to buy the dollar on the trade friction theme has negatively affected emerging market currencies and in turn fuels the dollar’s rise. Despite, the negative sentiment around the pound, the British currency manages to derive some support from Thursday’s upbeat comments by Barnier, citing that the EU is ‘prepared to offer a partnership with Britain such as has never been with any other country’.
Later today, in absence of relevant macro updates, the Brexit-related developments will continue to influence Cable ahead of the US-Canada NAFTA talks and the second-liner US revised consumer sentiment data. When looking from technical perspective, the 4 hours chart for the pair shows that it’s holding above a bullish 20 SMA, also above the 200 EMA, this last at around 1.2950, indicating selling interest is quite limited. Technical indicators in the same chart have begun easing from extreme overbought readings, rather reflecting the strength of Wednesday’s rally than suggesting upward exhaustion. The pair is still some 100 pips above its key support and outcome of today’s Brexit talks will be deciding factor on whether the pair gets to continue bull momentum or make a bearish leap. Expected support and resistance for the pair are at 1.2985, 1.2950, 1.2920 and 1.3045, 1.3085, 1.3110 respectively.
Colin specializes in developing trading strategies and analyze financial instruments both technically and fundamentally. Colin holds a Bachelor of Engineering From Milwaukee University.