- GBP/USD has been moving in a tight consolidative range on Asian Monday’s open in quiet holiday markets with NZ out for Labour day and an air of, the quiet before the storm with a busy schedule ahead this week.
- GBP/USD ended the North American day at 1.3070, +0.39% within the NY range 1.3021-1.3105. GBP/USD is currently sitting at 1.3065 with a 1.3063/78 15 pip range following a slightly more positive session on Friday for the pound on Brexit progress.
GBP/USD is like playing Russin roulette at the moment, albeit at least with some confidence that the downside is limited by the rising trend line support and spikes have not exceeded the ATR (between 33-41 pips for October so far) in any significant way, at most by around 60 pips. We have not seen any major break troughs in Brexit as yet, but there have been some market moving headlines that have made for spikes of around a $cent on a session, be it Asia, Europe or NY.
The latest spike came in last Friday’s close in NY where the pair travelled from 1.13040 to 1.3105 on built-up speculation that had been mounting in the press that PM May was about to negotiate an extended transitory period that would leave Britain subject to EU rules and policies until December 31 2021. That would include remaining under the jurisdiction of the European Court of Justice and is infuriating the Brexiteers in May’s party – although appeasing the sterling bull’s focussed on a clearing through the trees of Breixit that would help the BoE act accordingly should the economy warrant an interest rate hike.
Brexit pressures are off – for now
The rationale for considering a longer transition period is that it would provide the UK and the EU with more time to negotiate an agreement governing their future relationship and this, in turn, would enable the BoE to focus on the matter at hand when it comes to navigating the economy through the transition period – Economic data will be scrutinised with a view to hike interest rates when appropriate.
Tory political upset risks
However, the pound is not into the clearing yet. PM May will face opposition from the Brexiteers in her Tory Government, but at least she will have an opportunity to reassure her backbench opponents and the DUP that an agreement with the EU can more realistically be put in place during the transition period such that the backstop arrangements over the Irish border will never have to be implemented. We will see how this plays out this week as May must attend a meeting of the 1922 committee of Conservative backbenchers this week. She is facing disputes from the likes of Ex-Tory leader and prominent Brexiteer Iain Duncan Smith who is saying that May is taking Britain towards a deal that would see the UK paying the EU “tens of billions” more. “The negotiations “look more like a capitulation,” he argued.
GBP/USD levels
- Support levels: 1.3010 1.2980 1.2945
- Resistance levels: 1.3085 1.3130 1.3175
Valeria Bednarik, chief analyst at FXStreet explained that, from a technical point of view, that according to the daily chart, it closed below a flat 20 DMA:
“Technical indicators hover around their midlines without clear directional strength. Shorter term, and according to the 4 hours chart, the pair is bearish, as it failed to recover ground above a flat 200 EMA, while an early rally was rejected from selling interest around a bearish 20 SMA. Furthermore, technical indicators in this last chart have lost upward strength well into negative ground and after correcting oversold conditions. A break below 1.3010 could result in a bearish continuation toward 1.2880 during the upcoming sessions, the 61.8% retracement of the 2016/18 rally.”
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