Brexit may send GBP/USD lower as the crisis intensifies
- GBP/USD remains on the back foot after PM Johnson’s suspension of parliament.
- The ongoing Brexit battle and US GDP are set to dominate trading.
- Thursday’s four-hour chart is pointing to further falls.
Uproar, outrage, and a coup – have been used frequently in describing the UK government’s move to suspend parliament – squeezing the time MPs will have to thwart a hard Brexit. The opposition is taking to the courts, the streets, and perhaps to an “alternative parliament” – as the constitutional crisis intensifies.
Prime minister Boris Johnson received the royal consent to “prorogue” parliament from late last week until a new Queen’s speech on October 14. Johnson said that the move is a normal procedure that will give him an opportunity to present his domestic ambitions and receive approval from the House of Commons.
However, the forced recess – coming just after the summer one – has fooled no one and GBP/USD fell nearly 150 pips.
Suspension and the backlash
Parliament will then debate his agenda in mid-October – around the critical European Council scheduled for October 17-18 – close to the October 31 Brexit deadline.
The dramatic suspension announcement came one day after Labour, the Liberal Democrats, and others agreed to try to block a no-deal via legislation. Labour’s Barry Gardiner is set to table an emergency motion to force an extension of Article 50 – yet with little time on his hands.
An online petition has received over one million signatures and pro-Remain supporters have taken to the streets. However, the most significant attempt to thwart the suspension will likely come from the courts.
Any success the opposition has in stopping Johnson’s move may send higher. On the other hand, Downing Street may attempt to close its ranks and convince rebel Conservative MPs to continue supporting the government – and that may push the pound lower.
Currently, the government seems to have the upper hand.
Trade wars and US GDP
The US is set to impose new tariffs on China on September 1 and Beijing is on course to retaliate. However, just three days before these duties come into effect, US Treasury Secretary Steven Mnuchin has expressed optimism about new trade talks and Chinese officials have also called for negotiations. US bond yields are off the lows and the dollar is marginally lower.
The second release of US Gross Domestic Growth for the second quarter is forecast to show a minor downgrade from 2.1% to 2.0% and will feed into the next decision.
Overall, UK politics are set to dominate trading today after Wednesday’s dramatic events.
GBP/USD Technical Analysis
Pound/dollar fell below the uptrend support line and is struggling to hold onto the 50 Simple Moving Average on the four-hour . Moreover, momentum has turned negative and the Relative Strength Index is above 30 – outside oversold conditions.
All in all, bears are in control.
Support awaits at 1.2155, which was the low point on Wednesday. It is followed by 1.2110, which was a cushion last week, and then by 1.2065, and 1.2040, which were stepping stones on the way up. The 2019 low of 1.2015 is next.
Resistance awaits at 1.2270, which capped cable late last week. The next level to watch is 1.2310 – the weekly high. 1.2380, and 1.2420 are next.