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GBP/USD Daily Price Forecast – GBP/USD Turned Dovish Post FOMC Update amid Brexit Uncertainty

By:
Colin First
Published: Oct 18, 2018, 07:04 UTC

Hawkish Fed minutes and Brexit uncertainty indicate the path of least resistance for GBP is on the downside.

GBPUSD Thursday

The GBP/USD pair extended previous session’s retracement slide from 1.3237 level and remained under some intense selling pressure on Wednesday, weighed down by a combination of negative forces. Against the backdrop of some renewed Brexit uncertainty, softer UK consumer inflation figures for September exerted some additional downward pressure on the British Pound. Adding to this, resurgent US Dollar demand, further supported by a hawkish assessment of the latest FOMC meeting minutes also collaborated to the pair’s heavily offered tone through the US trading session. Minutes of the Federal Reserve’s September meeting reinforced market expectations that the Fed remains on track to continue with its gradual rate hike path beyond 2018 and underpinned the USD demand.

A Look From Technical Perspective Suggests Increase in Selling Bias

The pair lost some additional ground during the Asian session on Thursday and weakened farther below the 1.3100 handle to hit fresh weekly lows. More importantly, the pullback from the Oct. 12 high of 1.3258 has neutralized the bullish outlook put forward by the bull flag breakout confirmed on Oct. 5. This pullback is fundamentally supported by hawkish Fed minutes and Brexit uncertainty which suggests that in near-term, the path of least resistance is to the downside. As of writing this article, the pair is trading at 1.3082 down by 0.25% on the day. Yesterday’s EU summit meeting was largely dominated by talk of Brexit, but with the idea of the two sides reaching an interim deal mostly a wash, talks will likely continue focusing in the Italy-EU faceoff, with Italy’s budget drawing plenty of ire from fiscally-conservative voices within the EU’s leadership further increasing the uncertainty surrounding Brexit in global market.

Market participants now look forward to the UK retail sales data, expected to contract by 0.4% m/m and rise 3.6% y/y in September for some fresh impetus. Apart from the UK macro data, the incoming Brexit-related news/developments from the crucial EU summit might also influence the price dynamics and produce some meaningful trading opportunities. From a technical perspective, the pair’s inability to sustain/build on its momentum back above the 1.3200 handle, and the subsequent price action clearly indicates increasing selling bias. Hence, a follow-through weakness below weekly lows, around the 1.3080 region, is likely to accelerate the fall towards a short-term ascending trend-line support, currently near the key 1.30 psychological mark. Looking at the broader picture, the mentioned trend-line, along with another (descending) trend-line, against the backdrop of the downfall since mid-April, now seems to have constituted towards the formation of a bearish pennant on the daily chart. A convincing break below the 1.30 handle will reaffirm the bearish set-up and pave the way for the resumption of the prior bearish trend.

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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