GBP/USD ends week higher on sharp reversal, more gains ahead?
|- Cable reversed dramatically from multi-year lows, ending the week higher despite Friday’s slide.
- Combination of a recovery in the Pound on Brexit headlines and a weaker US Dollar boosted GBP/USD.
- Technical outlook hints at a bottom but direction likely to be influenced by Brexit and UK politics.
The GBBP/USD pair bottomed four days ago at 1.1955 and rebounded more than 350 pips, erasing weekly gains and making a strong recovery. Price peaked on Thursday at 1.2352, the highest level in a month and pulled back on Friday. It was about to end the week hovering around 1.2300.
Brexit and a weaker US Dollar
The US Dollar finished the week lower across the board, particularly against emerging market currencies amid an improvement in risk sentiment. The weaker greenback contributed to the rally of GBP/USD.
Another key driver for the move higher was Brexit headlines. The Parliament took control of the Brexit agenda and rejected PM Johnson call for elections before the deadline of October 31. It forced the government to seek a three-month delay if no other agreement is reached.
Johnson continues to speak against a Brexit delay, creating some uncertainty about what will he do next. Next week, the Parliament and UK politics will continue to be on focus, as the near future remains unclear.
The Pound rose on the back of rising hopes about avoiding a hard Brexit. Also, as preparations for a no-deal continue, the potential consequences of that outcome are seen as less disruptive as before, but still are a great source of concern.
In the US, on Friday, the employment report came in below expectation having a small impact on markets. US yields drop modestly, favoring the greenback. The DXY was about to end the week lower, down 0.53%. Key data next week in the US include inflation (CPI and PPI) while US-China trade talks continues to be a crucial event.
Technical outlook
GBP/USD is now enjoying upside momentum on the daily chart notes, Yohay Elam analyst at FXStreet. “It has finally crossed above the 50-day Simple Moving Average for the first time in many months – a bullish sign. The technical situation is improving, but the currency pair remains below the 100 and 200 SMAs. Initial resistance awaits at early September's peak of 1.2350. It is followed by 1.2380, which provided support in mid-July.”
On the flip side, Elam mentions initial support at 1.2250, which capped the pair in late July. “Further down, we find 1.2210, which also held GBP/USD down in early August. The next level is 1.2150, that provided support in late August.”
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