GBP/USD corrected, now time to rally

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  • GBP/USD has dropped below 1.2300, down after three days.
  • Speculation about the UK election timing and the US jobs report stand out. 
  • Friday’s four-hour chart is showing that GBP/USD is ready to rise

Prime minister Boris Johnson has said he would rather “die in the ditch” than delay Brexit. His heated rhetoric has come as the opposition has reportedly been planning to force him to do just that. GBP/USD has dipped on uncertainty surrounding the election date, but more importantly, sterling bulls are taking profits after surging some pips from Tuesday’s multi-year lows.

Timing is everything

The opposition’s bill states that the government must seek an extension to Article 50 – request the EU to postpone the exit to January 31 if parliament has not decided otherwise – by October 19. The bill passed the House of Commons on Wednesday and is set to be approved by the House of Lords later today. By Monday, it will have received the Royal Assent and become law.

Johnson wants to hold elections on October 15 – potentially winning and changing the law – thus allowing for a hard Brexit on October 31. The government confirmed it would table a motion to dissolve parliament and hold elections on Monday – once the opposition bill becomes law. However, under the Fixed Term Parliament Act (FTPA) of 2011, the PM may later change the election date – another route to a no-deal Brexit.

Legislation must pass quickly as parliament will be suspended by the government’s demand sometime next week. A second appeal to cancel parliament’s prorogation has been thrown out by a court in London earlier today.

Opposition parties have little faith in Boris Johnson – and nor does his brother Jo – who quit the government citing the national interest. Both Labour and the Scottish National Party have said that they will disallow the PM to set the election date due to mistrust. UK media reports that Labour leader Jeremy Corbyn is considering October 29 as an election date. However, damp weather which is typical to October tends to depress voting – especially Labour supporters.

While tensions are high and each comment creates a scandal, the bigger picture is positive for the pound. The chances of the UK crashing out of the EU on October 31 are diminishing by the day.

Top-tier US events

While British politicians continue bickering, the focus shifts to the US. The Non-Farm Payrolls report for August is expected to show an increase of 158,000 jobs and wage rises of 0.3% monthly – similar to July’s figures.

Leading indicators provided mixed clues on Thursday, with ADP’s employment report beating expectations while the employment component’s of ISM’s Purchasing Managers’ Index for the services sector was downbeat.

See:

Jerome Powell, Chair of the Federal Reserve, will speak after European markets close and may convey a message regarding the Fed’s critical September decision. A slew of his colleagues have spoken earlier this week and varied on their messaging. However, Powell may be vague as in his previous appearance at Jackson Hole, Wyoming.

Markets remain positive as the US and China have both expressed optimism ahead of early October’s high-level talks.

GBP/USD Technical Analysis

The Relative Strength Index on the four-hour chart has dropped below 70 – thus not reflecting overbought conditions anymore – allowing for further gains. Momentum remains positive, and GBP/USD trades significantly above the 50, 100, and 200 Simple Moving Averages – which converge just under 1.2200.

Immediate resistance awaits at 1.2310 – August’s high. The next line is 1.2350, which was the high point on Thursday. 1.2380 and 1.2420 both were support lines in July and now cap cable.

Support awaits at 1.2260, which was a temporary cap on the way up earlier this week. 1.2210 was a swing low this week and held GBP/USD down in early August. Next, we find 1.2155, which was a swing low in late August.

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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.