GBP/USD testing critical support at 1.2580 on hard Brexit concerns
|- GBP/USD overlooked highly charged over UK politics.
- GBP/USD testing trendline support, 1.2580.
- GBP/USD upside is limited to 38.2% Fibo retracement, meeting long-term trend line resistance at 1.3305.
GBP/USD is on the brink of a technical breakout to the downside fulled by the higher possibility of a hard Brexit given the incumbent PM May's recent resignation which opens Number 10 Downing Street to a new PM that may take a more hard line on Brexit, such as Borris Johnson.
However, as analysts at Rabobank point out, 'the risk that parliament will oppose a no deal Brexit is likely to put a floor under GBP in the coming months.' As such, looking to the charts, a break of 1.2580 may be limited to an immediate downside target of the prior swing low of 1.2456, (Jan 1st monthly candlestick).
U.S. GDP 2nd reading
Meanwhile, today's price action can be put down to a combination of Brexit angst and straight-up demand for the greenback, albeit somewhat delayed post the GDP data release following a pick-up in US Treasury bond yields - (However, we have seen a retracement from 2.2750% down to a current level of 2.2470%).
The GDP data arrived at 3.1% vs 3.0% expected and vs the 3.2% advanced reading, albeit with some extra disappointment in the business/equipment investment. However, on the whole, the U.S. economy is moving along and seen to be in 'a good place' according to vice Fed's Clarida, (a dove), speaking today in New York.
Looking ahead, July is going to be a big month for sterling - The Tory leadership election are expected in July. "If the new leader sees a no deal Brexit as a live option in October, GBP can be expected to fall towards the December low in the region of GBP/USD1.2480," analysts at Rabobank called, who see risks all the way down to 1.10 On a no deal Brexit in October.
GBP/USD levels
On an immediate technical standing, Valeria Bednarik, Chief Analyst at FXStreet argues that the GBP/USD pair is poised to extend its decline, down for a third consecutive day after correcting part of its May's sharp losses, enough to erase extreme oversold conditions in the daily chart:
"In the 4 hours chart the pair was again capped by a directionless 20 SMA at around 1.2675, the Momentum indicator is bouncing just modestly from its daily low but still within negative level, while the RSI indicator holds around 35, all of which maintains the risk skewed to the downside. Below the mentioned low, the next bearish target comes at 1.2580, the low from January 2, with a break below this last opening doors for a steeper slide."
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