3 reasons for the surge of GBP/USD and where next

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  • GBP/USD is trading on high ground in a highly volatile environment.
  • Parliament rejected a no-deal Brexit as expected, but other developments made the difference.
  • The technical picture is bullish for the pair.

The UK Parliament has rejected a no-deal Brexiton Wednesday in a stricter manner than the government wanted. The Spelman amendment forced embattled PM Theresa May to try to reject the motion and she failed on this as well.

After rejecting a no-deal exit, Parliament will now instruct the government to ask for an extension of Brexit. This was the original plan, but some significant developments made a difference.

Here are three reasons for the rise:

1) EU considering a longer extension

According to reports from Brussels, some countries see a short Brexit extension as useless as Parliament is divided. So, they are considering a long extension. Previous reports suggested a 21-month delay. A long delay opens the door to having no Brexit at all. A different scenario with possibly similar outcome talks of forcing the UK to revoke Article 50 altogether in order to avoid a hard Brexit, also lowering the chances that the EU ever leaves.

2) DUP considering supporting the deal

The Northern Irish party that the government depends on is reportedly willing to support May’s Brexit deal to avoid the risk of losing Brexit altogether. These reports are yet to be confirmed but have sent the pound higher. PM May will reportedly have a last-chance meaningful vote on Wednesday, March 20th. On March 21st, the EU Summit is due to discuss an extension to Article 50 in case this third Meaningful Vote (MV3) fails, which remains the most likely scenario.

3) Conservatives ready to rebel for Remain

The Brexiteers are not alone in voting against the government. The votes on Wednesday night showed that not only are MPs willing to vote against the government but ministers are willing to at least abstain and not fear their firing. With Remainers fighting back, there is a better chance of a softer Brexit.

The opposition moving towards a softer Brexit: The opposition Labour Party seems to have stopped just rejecting the government’s Brexit deal but is working on an alternative Brexit, presumably with Conservative members as well. A new plan may force the government to rethink.

GBP/USD Technical Analysis

GBP USD daily chart March 14 2019

We are using the daily chart given the magnitude of the moves. The Relative Strength Index is up, but below 70, thus not indicating overbought conditions. Upside Momentum is robust. The pair is also trading above the 50-day and 200-day Simple Moving Average. The 50 one crossed the 200 one, a bullish sign.

1.3365 was the February high and remains relevant. 1.3388 was the fresh peak seen on Wednesday. The next levels date to June 2018. 1.3485 capped cable in June and 1.3625 held it down in May. The next levels are 1.3710 and 1.3920.

Some support awaits at 1.3240 which was the daily low, and it is followed by levels such as 1.3185, 1.3150, and 1.3110 that were relevant before the recent volatility sent GBP/USD all over them. The most significant downside support is 1.2960 which was a double-bottom.

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.