GBP/USD finds support after dropping to fresh 10-day low near 1.30

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  • EU is reportedly looking to give UK an extension until May 22.
  • US Dollar Index erases Wednesday losses, rises above 96.50.
  • BoE keeps policy rate unchanged as expected.

With the British pound staying under selling pressure for the second day on Thursday amid the uncertainty surrounding Brexit, the GBP/USD pair fell to its lowest level in more than a week at 1.3003 before staging a modest recovery in the last hour. As of writing, the pair is trading at 1.3050, still down 1.1% on a daily basis.

According to the latest headlines coming from Brussels, a draft document of the EU’s official response to the UK’s request for an extension to Article 50 until June 30 showed that the EU would grant an extension until May 22 with the condition that the parliament approves British Prime Minister Theresa May’s Brexit deal. “The European Council commits to agreeing, before 29 March 2019, to an extension until 22 May 2019 provided the withdrawal agreement is approved by the House of Commons next week.” the draft read, as reported by Financial Times. “Given that the UK does not intend to hold elections to the European Parliament, no extension is possible beyond that date.”

On the other hand, the US Dollar Index, which fell to its lowest level since the first week of February at 95.74 on Wednesday amid the FOMC’s dovish shift in its statement and the updated economic projections, recovered decisively with the greenback finding demand as a more reliable alternative to its European rivals. At the moment, the DXY is up 0.65% on the day at 96.55.

Earlier in the day, the Bank of England announced that it left its policy rate unchanged as expected. In its policy statement, “The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction,” the bank reiterated.

Technical outlook by FXStreet analyst Yohay Elam

The Relative Strength Index (RSI) on the four-hour chart dropped below 30, indicating oversold conditions. This implies a correction is on the cards. However, cable dipped below the 200 Simple Moving Average and downside Momentum intensified. 

The next support line is only at 1.3010 which was a swing low last week. 1.2960 is a significant support line. It was a double bottom. Further down, 1.2920 and 1.2850 are eyed. 1.3120 turns into resistance. It provided temporary support early in the day. 1.3180 was a swing low early in the week and 1.3250 was a swing high on Wednesday.

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