- GBP/USD has retreated from the highs and looks for a new direction.
- The PM’s corporate tax cut cancellation weighs on the outlook.
- Monday’s four-hour hour chart is pointing to fresh falls for the pair.
Is the Conservative Party no longer the party of business? Prime Minister Boris Johnson has announced the government is canceling a corporate tax cut and shifting the money to the National Health Service. Taxing and spending is the hallmark of Labour-led, left-leaning government, not the Conservatives.
Johnson – speaking at the Confederation of British Industry’s conference – spooked investors. They have already been worried by his willingness to leave the EU without a deal – and are now equally worried Labour leader Jeremy Corbyn as well Johnson.
The pound has been retreating and has lost some 30 pips from the highs of 1.2985 reached earlier, as Johnson’s expanding double-digit poll-lead sent sterling higher.
The next GBP/USD moves
The pound is mostly moving and election-related developments. Comments from senior politicians and new surveys ahead of the December 12 poll have the greatest influence.
On the other side of the pond, the dollar awaits President Donald Trump’s reaction to the latest high-level talk between US and Chinese negotiators. Senior officials from the world’s largest economies held a video conference over the weekend and concluded it as “constructive.” However, details about the conversations and the probability of a trade deal are mostly in the hands of the president.
Trump has offered to appear before the impeachment inquiry, raising the political mercury in Washington, but traders are far more interested in tariffs.
Overall, politics are set to dominate today.
GBP/USD Technical Analysis
Despite the recent drop, the Relative Strength Index continues pointing to overbought conditions – implying a further downward correction. Only a drop of the RSI below 70 may relieve the pressure. Other indicators remain upbeat. Momentum remains to the upside, the pair is trading above the 50, and 100, and 200 Simple Moving Averages, and the sterling left the downtrend resistance line behind.
Looking up, 1.2980 remains intact as critical resistance after holding the pound down in late October and also preventing a further rally now. The six-month high of 1.3013 is also of importance. 1.3045, 1.3080, and 1.3175 are the next levels to watch.
Support awaits at 1.2950, which has been supporting sterling today. Further down, the round level of 1.29 was a swing high in mid-November and now works as support. 1.2820 and 1.2760 are next.