- GBP/USD extends its falls towards 1.2600 on ongoing political turmoil.
- The fate of May and the withdrawal deal are in the limelight as Brits vote in the EU elections.
- The technical outlook is mostly bearish for the currency pair.
Theresa May is still the PM, but probably not for long. The embattled leader has suffered a grueling day in which she faced immense pressure to quit from backbenchers and ministers alike. She has refrained from doing so but lost Andrea Leadsom, a senior minister.
Members of her Conservative Party have not been satisfied with her leadership and her latest proposal on Brexit seemed to have been the straw that broke the camel’s back. In that deal, the PM opened the door to a second EU referendum and a customs union. Many of her colleagues found this unacceptable.
At the moment, she intends to publish the new Withdrawal Agreement Bill (WAB) on Friday, after Brits vote in the European Parliament elections. According to the original plans, the UK should have been out of the EU by now, thus not participating in the poll. Both May’s Tories and the main opposition Labour are expected to suffer heavy losses. Results are due only on Sunday.
The pound has suffered on the political uncertainty and fears that centrist May will be replaced by the
Politicians are unlikely to wait for the election results nor for seeing the WAB. According to reports, more ministers are set to step down and the pressure on May is unlikely to abate. On this background, GBP/USD may extend its falls.
USD strength as well
The currency pair is also falling on USD strength. Similar to the plotting against May, the US-Sino trade war is not going away. China hinted it may use its reserves of rare earths as a bargaining chip in the trade wars. The world’s second-largest economy sits on stocks of materials that are crucial for mobile phones and other industries.
US Treasury Secretary Steven Mnuchin said that imposing additional tariffs on China is still on the cards. Several commercial banks have upgraded their forecasts to include a protracted trade war between the two countries.
In the meantime, the central bank does not seem worried. The Fed’s meeting minutes showed that the patient stance on interest rates does not imply a rate cut in the near future, contrary to what markets price in.
All in all, GBP/USD has all the reasons to fall.
GBP/USD Technical Analysis
GBP/USD is free-falling with downside momentum on the four-hour chartand trading well below the 50, 100, and 200 Simple Moving Averages. However, this downside momentum is not as strong as it used to be and the Relative Strength Index (RSI) is just below 30, indicating oversold conditions. Will GBP/USD bounce from the lows?
The round number of 1.2600 is the initial support line. It is followed by 1.2530 which provided support in December, and then by the flash crash low of 1.2435 seen in early January.
Resistance awaits at 1.2660 which was a swing low in January, then by 1.2685, a temporary support line from earlier this week, and finally by 1.2710, the closing level last weekGet the 5 most predictable currency pairs