GBP/USD Price Forecast – Brexit Woes Continue To Plague British Pound But U.S. T.Yield Inversion Curve Helped Limit Downside

A lack of bidding power underneath the Sterling is keeping the major pairing at bay near five-week lows at the 1.2700 key barrier.
Colin First
GBPUSD Wednesday
GBPUSD Wednesday

As Prime Minister Theresa May battles to drum up support for her Brexit deal, her government was found in contempt of Parliament on Tuesday over its refusal to release Brexit legal advice from the Attorney General. Despite considerable support from her own Conservative Party, the motion passed 311 to 293 and thrusts the government into unfamiliar constitutional territory. Now in contempt, May’s government will be forced to release legal advice it had tried to keep secret which Leader of the House of Commons Andrea Leadsom announced will be published today. Shortly after the vote of contempt, an amendment to hand Parliament more power over Brexit should the vote on May’s deal fail, also passed. Again unable to generate noteworthy support from outside her party, the two passed motions inflame concerns that Theresa May will be unsuccessful in her bid to get the Brexit deal passed and highlights the incredibly fragile state of her government which has put considerable pressure on British Pound.

May’s government is now required to release the Attorney General’s legal advice on Brexit

The GBP/USD pairing is off of recent highs once again as Brexit-based volatility is fueling steady drops into new lows, and rising investor fears about a hard Brexit and the upcoming parliamentary vote is keeping the Pound underbid as broader markets seek safe shelter amidst growing fears about a global economic slowdown. Tuesday saw the Cable set in heavy whipping action, bolstered into near-term highs near 1.2840 after the European Central Justice announced that the UK is essentially free to withdraw Article 50 at anytime, a move that would effectively kill Brexit, but the ECJ’s comments were met shortly thereafter by a staunch Prime Minister Theresa May, who sent a spokesperson to announce that the UK would not be quitting Brexit under any circumstances, throwing the Sterling back onto the floor, punching into a new 18-month low at 1.2658 before recovering into 1.27 handle, a level that GBP/USD has been struggling with over the last few weeks. As of writing this article, the GBP/USD pair is trading at 1.2681 down by 0.28% on the day.

Thankfully the downside was limited and rebound was fueled owing to fears of slowdown in US economy as evident from fall of US equities and Treasury Yield curve inversion. The economic calendar is a fairly light screening for the GBP, with November’s final Markit Services PMI due at 09:30 GMT and forecast to clock in at 52.5, a mild uptick from the previous month’s 52.2, while the US market session will see release of Markit Composite PMI, Unit Labor Costs and Services PMI data. However activity in US market is likely to remain subdued owing to American institutions shuttered in observance of the passing of former President George H.W. Bush. When looking from technical perspective, the pair has been extremely volatile, but there hasn’t been any change in negative tone. According to the 4 hours chart, the pair is now developing below a mild-bearish 20 SMA, while technical indicators remain within negative ground, lacking directional strength at the time being, a result of the latest 70 pips’ bounce. Expected support and resistance for the pair are at 1.2660, 1.2620 and 1.2760, 1.2800 respectively.

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