GBP/USD Forecast: On recovery mode, but Brexit fears rise

The GBP/USD pair hit fresh 7-year low of 1.4057 on Monday on Brexit fears, before profit taking helped Sterling recover to 1.4168 levels in the NY session. However, the bears were back in the Asian session today and pushed the pair back to 1.4090. As of now, the pair is trading above 1.4100 with traders focused on Brexit related news flow.

Brexit is a bigger threat than last year’s election

Ratings agencies have repeatedly said Brexit is a bigger threat to UK than last year’s general elections. In fact, Moody’s had warned last year in April that the prospect of Britain leaving the European Union could cause more damage to the country's credit rating than uncertainty over the outcome of the elections. Warning shots were fired again yesterday, courtesy of which Sterling hit a fresh 7-year low.

Eyes Carney’s Testimony

BOE’s Mark Carney will testify to UK lawmakers on the Inflation Report. Annual Reports from Minouche Shafik & Martin Weale are also on the agenda. Given the Brexit is the hottest thing on the wires now, the lawmakers are likely to question BOE’s Carney about the possible effect of Brexit on the UK economy. Carney is likely to come out in support of EU membership and that may help Pound gain ground. However, GBP bulls need to be cautious as Carney may indirectly point to Brexit as a hurdle in BOE’s plans to raise rates.

Technicals – Strong resistance at 1.4175

Sterling’s failure to 1.4072 levels despite three consecutive red candles on the 4-hr chart, if followed by a recovery above 1.4120 has opened doors for a re-test of the falling channel resistance at 1.4175.

An hourly close above 1.4175 could see the spot extend gains to 1.42-1.4220 levels.

On the other hand, a failure to sustain above 1.4090 would open doors for a drop to 1.4057, under which losses could be extended to 1.40 handle.

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