GBP/USD Forecast – Recovery Rally Fails to Hold Above 1.2500

PM Johnson Convinced a Deal can be Made

After much speculation that newly elected Prime Minister raises the chances of a no-deal Brexit, Johnson conveyed a reassuring message today. The recently elected Prime Minister is meeting with his newly formed Brexit team today and said: “I am convinced that we can do a deal”.

GBP/USD has recovered a bit since the election announcement but struggled to make a sustained push above the 1.2500 handle yesterday. The pair has been easing lower since, although it is worth noting that there is not much momentum behind the current decline.

Johnson is expected to make a statement today to outline his priorities for government. The statement is expected to start at 10:30 GMT and stands to cause volatility in the GBP pairs.

The markets may shift their focus away from UK politics following Johnson’s statement as the European Central Bank is scheduled to share their latest views on monetary policy. The markets are pricing in about a 50% chance that the ECB will cut rates today.

Technical Analysis

GBP/USD has held below resistance at 1.2486 on a daily basis which suggests that sellers have stepped in here. Consider the broader downtrend in GBP/USD, and the generally weak Sterling, this does not seem like a big surprise.

What I found interesting is the general lack of downside momentum in the decline from yesterday’s high. It certainly does not offer a strong signal that the pair has returned to the more prominent downtrend.

The support level I’m watching here is at 1.2453. I think that while we are above this level, we could continue to correct a bit higher. At the least, I don’t see a strong bearish signal at this point.

The big upside hurdle remains the 1.2500 handle. I also think 1.2486 is being respected considering yesterday’s daily close in relation to it. In this context, I see the level as the first obstacle for bulls.

As mentioned in yesterdays’ forecast, I think it will take a sustained push above 1.2500 for the markets to take this current recovery seriously.

Bottom Line

• GBP/USD sold off after a fake break above 1.2500.
• There is not much momentum in the decline, which suggests the pair still remains in recovery mode.
• Support for the pair is seen at 1.2453 in the even it continues lower from here.