How high can GBP/USD go? Brexit is fading away

September 5, 2019 Off By admin-445
  • GBP/USD has surged some 300 pips from the lows and more may be in store. 
  • Lower chances of a no-deal Brexit boost the pound.
  • Further febrile political developments and US data are set to dominate trading.
  • Thursday’s four-hour chart is showing that GBP/USD is breaking critical resistance.

The pound has been on the run  – perhaps like a “chlorinated chicken” – to the upside after the House of Common approved a bill that will prevent a no-deal Brexit. The legislation will likely be approved by the House of Lords on Friday and become law by Royal Assent on Monday. Opposition parties have remained united and determined – and markets like it. The diminishing prospects of the UK leaving the EU without an accord have already sent  300 pips off the lows.

“Chlorinated chicken” mentioned above is the term that prime minister Boris Johnson used against Labour leader Jeremy Corbyn for the latter’s refusal to back a bill for new elections. Johnson said that the opposition never refuses a chance to replace the government and that Corbyn is afraid of losing. The opposition leader and his peers said that they mistrust the PM – as he can change the election date after the bill has passed, thus forcing a hard Brexit.

The government offered elections on October 15, two days ahead of a summit of EU leaders and 16 days ahead of the  deadline. Labour is internally discussing the date – before or after October 31 – while campaigning is practically underway. Johnson is set to deliver a speech outside London later – seen by many as the launch of his election bid.

While UK politics are lively and colorful, chief EU negotiator Michel Barnier has reportedly told diplomats that “Brexit talks are in a state of paralysis.” The French statesman’s comments followed a six-hour meeting between David Frost, a special envoy for Johnson, with his EU counterparts. His words help convince Tory rebels that the PM was ingenuine in promising a new deal.

US data eyed

On Wednesday, Markit’s Purchasing Managers’ Index for the services sector slipped below expectations with 50.6 points – but held up above 50 – thus representing growth in Britain’s largest sector. Mark Carney, Governor of the , said that the damage to the economy under the worst-case scenario has improved – a drop of only 5.5% in output against 8% in a previous report. Nevertheless, if the forecast materializes, remains devastating.

The focus shifts to US data. ADP’s  figures for July serve as a hint toward Friday’s official jobs report. A moderate increase similar to July 156K gain is projected for August. Later, the ISM Non-Manufacturing PMI is a forward-looking indicator for America’s services sector. The ISM Manufacturing PMI plunged to 49.1 – the worst since 2016 and reflecting a contraction in the sector.

Top US and Chinese officials held a phone conversation late on Wednesday and agreed to meet in October. Both sides expressed optimism and sent stocks higher. Nevertheless, it is unclear if yet another round of talks may result in an accord – nor stopping the next tariffs planned by President Donald Trump.

GBP/USD Technical Analysis

The four-hour  is showing that GBP/USD is battling 1.2310 – August’s high that is critical resistance. If the break is confirmed, the next resistance line is 1.2380 – a support line from mid-July. The next cap is 1.2420 that held it up in late-July. Further above, 1.2480 was another support line and 1.2520 was a double top around the same time.

Support awaits at 1.2275, which was a resistance line in mid-July. Lower, 1.2230 capped GBP/USD in late August. Next, we find 1.2200, which provided support in late August, followed by 1.2150, 1.2110, and 1.2065.

Momentum remains positive while the Relative Strength Index is on the verge of crossing 70 – entering overbought conditions. That may imply a correction before the next move higher. GBP/USD has broken above the 50, 100, and 200 Simple Moving Averages – another bullish sign.