- GBP/USD has been trading steadily after a friendly Johnson-Merkel encounter.
- The UK PM now meets President Macron, which may offer a stricter stance.
- Thursday’s four-hour chart is paining a mixed technical picture.
“Maybe we can find that solution in the next 30 days, why not?” – Those positive words by German Chancellor Angela Merkel have failed to lift the pound from its low trading range. Merkel seems to be playing the “good cop” while French President Emmanuel Macron is playing the “bad cop.” And now, UK prime minister Boris Johnson faces an encounter with Macron in Paris.
In a friendly press conference in Berlin on Wednesday, the British and German leaders refrained from criticizing each other’s Brexit stance. The quote above refers to the Irish backstop – the most controversial issue in the Brexit accord. Johnson responded by seizing the 30-day challenge and saying the “onus is on the UK” to offer a solution and expressed his usual optimism.
However, political commentators – and sterling traders – were unmoved. The EU has rejected every technological solution, and it is implausible that the UK may come up with a magic formula within 30 days – or 77 days left to Brexit.
Shortly before the Berlin Summit, an unnamed French official said that the baseline scenario now seems to be a no-deal Brexit. France has been taking a harder stance against the UK – and also pushed for the shorter extension.
Johnson speaks French and Macron is well-versed in English. They well-educated leaders may exchange niceties but are unlikely to find common ground on a solution.
Will the pound fall in response? The UK-EU disagreement is priced in, but surprising statements may rock currencies.
Political developments back in London are also of interest. Labour leader Jeremy Corbyn has summoned fellow opposition leaders to a meeting to discuss their options. The Liberal Democrats – a staunchly pro-Remain party – has significant differences with Corbyn and may be reluctant to vote him into 10 Downing Street. Moreover, rebel Conservative MPs are also hesitant. Parliament returns from the summer break on September 3rd, and the political drama is set to heighten.
On the other side of the pond, the Federal Reserve’s meeting minutes have shown a split central bank. Most members supported the July 31st decision to cut rates as a “mid-cycle adjustment.” However, others rejected cutting rates, and a couple wanted a double-dose slash of 50 basis points.
The market reaction to the somewhat stale document was muted, as markets await a more significant event. Fed Chair Jerome Powell will deliver a highly-anticipated speech in Jackson Hole on Friday. Investors are eager to know if the bank will cut rates in September.
See FOMC Minutes: Dissension in the Ranks Raises Stakes for Powell at Jackson Hole
Overall, the Johnson-Macron meeting at the Élysée Palace and speculation about the Fed’s next moves are set to dominate trading today.
GBP/USD Technical Analysis
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GBP/USD continues trading in the uptrend channel, but momentum has turned to the downside on the four-hour chart. The currency pair keeps struggling with the 50 and 100 Simple Moving Averages. All in all, the picture is mixed.
Support awaits at 1.2110, which is the daily low. More significantly, 1.2060 was Wednesday’s trough, and it is followed up by 1.2040, the bottom last week. The 2019 low of 1.2015 is the next level to watch.
Resistance awaits at 1.2180 which capped cable earlier this week. The mid-August swing high of 1.2210 is next and is followed by 1.2250 – the post-crash peak dating to early this month.
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