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GBP/USD Daily Forecast – Sterling Bounces From Multi-year Lows

Jignesh Davda

Markets Not Confident UK PM Will Reach a Deal

Ever since it became clear that Boris Johnson was going to be the new Prime Minister of the United Kingdom, Sterling has been selling off with momentum. The pound had a short-lived relief rally after he was formally elected, only to continue lower. On Friday, GBP/USD touched lows not seen since the start of 2017.

Reuters published a piece today discussing the potential of a no-confidence vote, which has brought some optimism over reaching a Brexit deal and lifted the pound higher.

The article indicated that the Labour party said a no-confidence vote is a possibility and that discussions were taking place on how to carry one out. It further quoted one of the party members that said nobody had confidence in Johnson aside from his own people.

Although GBP/USD is catching a bid here, I think it is important to be cautious with these type of news releases. Nothing about the article brings confidence that this will happen, or that it even can. We can easily see a further update that essentially reverses this viewpoint.

However, for now, the pair shows clear upward momentum. This is aside from a stronger dollar to start the early week. As of the European open, the dollar gained against all its major counterparts except Sterling and the Japanese yen.

Technical Analysis

Last week, the focus in GBP/USD was a bearish flag pattern. This pattern broke down, and targets for it fall just below the 1.2000 handle. In this context, the pattern remains at play, and rallies are likely to be sold.

GBPUSD Hourly Chart

GBP/USD is nearing the first level of upside resistance which comes in at 1.2085. This level held the pair higher at the start of the month and offered resistance on Friday in a small recovery ahead of the North American open.

This seems to be a fairly strong level, however, in the event we scale above it, I would be targeting a move to 1.2138. The level marks a horizontal level which also confluences with the 100 and 200-hour moving averages.

Bottom Line

  • GBP/USD is catching a bid as talks of a no-confidence vote are alleviating some of the downside pressure
  • There is not enough evidence of a bullish reversal in trend, the first area sellers may step in is at 1.2085.

This article was originally posted on FX Empire