GBP/USD Daily Forecast – Sterling Tumbles, Support in Play

Jignesh Davda
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Johnson Comes Across Optimistic in Interview

While much of the circulating narrative suggests that GBP/USD has plummeted on Brexit worries, the new UK PM told reporters that there was “ample scope” to make a deal.

The Guardian published a video interview with Boris Johnson in which he said the aim is to reach a deal, reiterating that a no-deal Brexit was a last resort. He added that although there is no change in the position of European leaders, the communication has been “very, very positive”.

Johnson revealed that he is not even considering negotiating the Irish backstop. He is seeking to make a new deal and stated that the current “withdrawal agreement as it stands is dead”.

On the data front, US inflation figures will be released in the North American session along with Consumer confidence figures. As GBP/USD has mostly been influenced by UK politics, it does not seem likely that this data will have much of an influence.

Rather, market participants will continue to monitor Brexit developments as headline risk certainly appears heightened. As well, the bigger catalyst for a meaningful move in GBP/USD is likely to be Wednesday’s Fed meeting where the US central bank is largely expected to cut rates.

Technical Analysis

Sterling was already the weakest major currency for July before this week started. The early week tumble now has it trading at fresh yearly lows against almost all major currencies.

The exception is the Japanese yen, and that is only because of the yen flash crash near the start the year. On a daily close basis, GBP/JPY is well below the early year low.

GBPUSD Hourly Chart
GBPUSD Hourly Chart

The British pound is clearly a weak currency but I don’t think it is worthwhile chasing it lower. For starters, there is a fairly important support level that comes into play at 1.2155. This level held the pair higher on several attempts between late 2016 and early 2017.

To the upside, I’m looking at resistance at 1.2300. I expect that sellers will look to defend the level, at least ahead of Wednesday’s Fed meeting.

Bottom Line

  • GBP/USD has extended losses to fresh 2-year lows.

  • Support at 1.2155 is in play. While the pair dipped below it earlier today, buyers have brought the exchange rate back above it.

  • Resistance at 1.2300 is likely to hold sellers.

This article was originally posted on FX Empire

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