GBP under Brexit Pressure

The British pound is recovering after a massive selloff that occurred a while ago. GBP is looking for reasons for becoming stronger, but is somewhat calm for now.

Brexit talks between the United Kingdom and the European Union have been back since last week, and the new phase traditionally began with discussing EU claims. Michel Barnier, a key representative of the EU party of the talks, made a statement that sent the pound lower.

Barnier emphasized that the parties may still not come to an agreement. The problem is that the UK is all for the ‘mild’ Brexit scenario, while the EU is insisting on ‘hard’ Brexit, which could become far more painful for London. The parties have not yet agreed on the European Court role after the UK leaves the Union, as the civil right acts passed by the EU are here to stay. The parties have no intention of putting each other’s interests at any disadvantage, but as long as there’s no clear policy specified, it is a reason for the EU to suspend the talks.

The market are discussing whether the ‘mild’ Brexit is feasible or only the ‘hard’ scenario is now viable. The UK is still making it clear and consistent, but this does not support the British pound at all.

The Brexit uncertainty makes the fundamentals a bit frightening. The manufacturing production in December dropped by 1.30% MoM, which appeared to be a 10-month low. Meanwhile, the PMI went from 54.20 to 52.00, that being a 18-month low.

Technically, there are several trends dominating in GPB/USD. The major trend is still ascending, while the mid-term one is a correctional downtrend with the target at the major channel support, or at 1.3650. The short term trend is also descending and is a part of the mid-term impulse. This short term movement may become the final component of the internal correction. After the price achieves 1.3650, it may bounce off to the mid-term descending channel resistance at 1.3890, and then head towards the upper projection channel at 1.4060.


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Author: Dmitriy Gurkovskiy, Chief Analyst at RoboForex

 

Disclaimer

Any forecasts contained herein are based on the authors’ particular opinion. This analysis may not be treated as trading advice. RoboForex bears no responsibility for trading results based on trading recommendations and reviews contained herein.