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GBP/USD Daily Forecast – Sterling Declines After Testing 1.2500

Jignesh Davda

Johnson to Lay the Groundwork for Brexit Deal

UK Prime Minister Boris Johnson will be spending the next few days talking to EU officials in preparation for the October 17-18 EU summit where he hopes to make a deal.

Johnson is meeting with European Commission President Jean-Claude Juncker today, who also appears motivated to put together a deal before standing down from his position at the end of October.

However, Johnson has yet to present a clear solution to the disagreement between the EU and the UK over the Irish backstop.

Brexit party leader Nigel Farage does not appear to have much confidence in a deal by the October 31 deadline. Farage said he expects that the EU might provide some concessions at the EU summit but that Johnson will ultimately fail to get it through parliament.

A failure to reach a deal by the end of October brings about a great deal of uncertainty regarding Brexit. For starters, Johnson has repeatedly refused to ask for an extension of the deadline. This suggests he might resign in the absence of a deal. Further, it is likely a general election will take a place and there will be at least an attempt to call for a second referendum.

Technical Analysis

The momentum in GBP/USD is certainly to the upside as the markets have perceived recent developments to have decreased the odds of an EU exit without a deal in place.

Sellers have stepped in at notable levels to hinder to recovery. Last week, the currency pair was capped at 1.2373 horizontal resistance for most of the week until a breakout finally materialized on Friday.

This week, the exchange rate is seeing selling pressure from a major resistance area. Not only is the psychological 1.2500 level in play, but several moving averages have converged to offer a resistance confluence.

GBPUSD 4-Hour Chart

On a weekly chart, the 20 moving average has come into play, currently residing at 1.2489. In addition to it, the 100-day moving average is just above recent highs, currently found at 1.2509. The overhead resistance confluence offers a major hurdle for the recovery.

At the same time, as mentioned, the momentum appears to be to the upside. For this reason, I expect that dips will continue to be bought in the pair. The critical support level to the downside is 1.2373 which was major resistance last week.

Bottom Line

  • GBP/USD is facing a significant technical hurdle and is seeing some selling pressure at the start of the week.
  • Johnson is trying to lay the groundwork for a deal at the EU summit that takes place October 17-18.
  • Progress towards an exit with a deal in place by the end of October will tend to be positive for Sterling.

This article was originally posted on FX Empire