GBP/USD ignores Yellowhammer’s red alerts and has a green light to rise
Is already pricing in the worst-case scenario? Probably not, but it seems that investors are optimistic that a hard Brexit will be avoided. A currency pair that weathers bad is showing its strength and may shoot higher on an upbeat development.
The UK may suffer disruption to medicine supplies, rising food prices, and perhaps public disorder on its streets in case of a no-deal Brexit. Prime minister Boris Johnson’s government made that assessment in August and then labeled the scenario as a “base-case” one. Back then, the government dismissed the projections – called “Yellowhammer” and revealed by the Sunday Times – as outdated.
And now, after it was asked to publish them, it changed the headline to “reasonable worst-case scenarios.” Michael Gove, the minister responsible for Brexit preparations, has played down the details and said that he had taken several steps to prepare the UK for leaving the EU.
Wednesday’s late-night publication failed to push the pound lower – perhaps as it was already published – but also after parliament’s bill to prevent a hard-exit became law on Monday. Moreover, the House of Commons – where an anti-no-deal coalition commands control – may return to session sooner rather than later.
The High Court in Scotland ruled that the decision to suspend parliament was “unlawful.” As a court in London ruled in favor of the government, there has been no return to normal business in the Hosue. This matter of prorogation will be finally decided next week by the UK Supreme Court.
With 49 left to go until October 31 – the current Brexit day – uncertainty remains high despite the recent optimism. Further comments by politicians may move the pound. While opposition parties have succeeded in raising the chances of another extension, they lack a plan of what to do instead – some want to revoke , others want a second referendum, while several wish to leave with a deal.
The focus soon shifts to the US. The Consumer Price Index (CPI) figures are set to move markets less than a week ahead of the all-important decision by the Federal Reserve. Subdued inflation data has been one of the reasons for the Fed’s rate cut, and an increase in prices may limit future cuts.
GBP/USD Technical Analysis
GBP/USD is trading within an uptrend channel. Uptrend resistance was formed in mid-August while support dates back to last week. The currency pair is trading above the 50, 100, and 200 Simple Moving Averages adding to the bullish sentiment. Moreover, Momentum on the four-hour chart is positive.
All in all, bulls are in control.
Some resistance awaits at 1.2355 which capped GBP/USD last week. September’s high point at 1.2385 is the next level to watch. Further up, 1.2420 held the pair up in July and now serves as resistance.
Support awaits at 1.2310, which provided support earlier this week and also capped cable in late August. Lower, we find 1.2235, which was a swing low last week. Next, 1.2115 was a support line in late August,