GBP/USD: All eyes on Brexit headlines as risk of no-Deal scenario heighten

  • GBP/USD opens will a bullish gap following big downside last week.
  • GBP/USD is in supply following poor GDP and risks of a no-Deal Brexit.

GBP/USD has opened a touch higher at the start of the Asian session, +0.10% at the time of writing with a high of 1.2050 vs a low of 1.2034. Brexit remains a weigh as well as the most recent UK economic data.

The pound plummeted on both headlines over a hard Brexit as well as the latest data that warns of a recession. The UK economy contracted in Q2, with the growth of -0.2% QoQ (versus expectations for a flat read), and annual growth fell from 1.8% to 1.2% YoY:

“Temporary factors, such as stock building and earlier orders had artificially bumped up the growth numbers in Q1. This reverted in Q2 as the Brexit deadline was delayed. The negative print adds to recession fears in an environment where Brexit uncertainty continues to dampen activity, and the 31 October deadline looming,”

analysts at ANZ Bank. 

Looking ahead

With respect to the Pound and Brexit risks, the rhetoric around a no-deal Brexit is unlikely to sound any better over the next few weeks which should keep corrections limited. We are waiting for the public information campaign for no-deal preparations to be announced while will make a no-deal look like a credible threat to the EU. One of the key meetings to watch fro this month will be with PM Johnson meeting with Macron and Merkel in person at the G7 summit on 24-26 Aug. For the week ahead, it is a busy one for the Dollar with the minutes of the last Federal Open Market Committee meeting, Fed speakers, Consumer Price Index and Retail Sales all on tap.

GBP/USD levels

Valeria Bednarik, the Chief analyst at FXStreet explained that the GBP/USD pair daily chart shows that it broke to the downside after a consolidative phase, signaling higher chances of additional slides ahead:

“In the daily chart, technical indicators keep heading south despite being in oversold territory, while the pair is developing far below its moving averages, maintaining the risk skewed to the downside. In the 4 hours chart, the pair took a dive after repeatedly failing to overcome its 20 SMA, which now gains downward traction at around 1.2130, well below the larger ones. Technical indicators in this last time-frame offer sharp bearish slopes, with the RSI currently at 27. The decline could gain additional momentum on a break below 1.2020 while an upward corrective movement would likely meet sellers at around the mentioned 1.2130 level.”

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