- GBP/USD has been struggling to recover after falling to the lowest in five months.
- The second round of the Conservative Party’s leadership contest is the main event today.
- Tuesday’s four-hour chart shows oversold conditions, implying a temporary bounce.
The second round of “Who wants to be Prime Minister” awaits pound traders with Boris Johnson the clear favorite – apparently bearish for Sterling. Johnson has said that the UK “must” leave the EU by October 31st – deal or no deal. The pound has previously suffered when prospects of a hard Brexit increased.
MPs in the Conservative Party will be voting on six candidates. The contender with the least number of votes will be eliminated and so will any other nominee that fails to receive 33 votes. Former foreign secretary Boris Johnson won the first round with 114 votes and he will likely increase his support this time – with the others tussling for second place. The last two men standing then face the 160,000 strong party membership in a postal vote.
The runner ups views on Brexit range from Dominic Raab wants to bypass parliament to ram through a no-deal exit to Rory Stewart who rejects the option. Jeremy Hunt, Michael Gove, and Sajid Javid complete the list.
In the US, the Federal Reserve kicks off its two-day meeting ahead of Wednesday’s announcement – and tension is rising in markets. The USD has lost some ground on Monday after the New York Manufacturing Index – usually ignored by markets – dropped to negative territory in June.
The Fed is expected to leave its interest rates unchanged this time but open the door to cutting rates in the near future due to low inflation and trade concerns.
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The Bank of England announces its decision on Thursday, but Governor Mark Carney will have his already today. Carney will speak at the European Central Bank’s conference in Sintra, Portugal, and may express concern about global headwinds.
GBP/USD Technical Analysis
The Relative Strength Index is below 30 – pointing to oversold conditions – and implying a bounce. However, any such bounce may be temporary as downside momentum remains strong.
Initial support awaits at 1.2510 which is the fresh five-month low seen early in the day. Further down, 1.2475 was a stubborn support line in December 2018 and 1.2445 was the low point in early January.
Initial resistance awaits at 1.2558 which was the previous 2019 low set in late May. Next up, 1.2605 capped GBP/USD on Monday and serves as resistance. 1.2640 which provided support in early June and 1.2660 that held it up last week are next.
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