GBP/USD analysis: bearish case mounts on Brexit stalemate

GBP/USD Current price: 1.2855

  • UK inflation retreated in January, in line with BOE's latest forecast.
  • Brexit uncertainty remains high amid contradictory headlines yet no material fact over a deal.

Nervous trading was the name of the game around GBP/USD this Wednesday, which jumped to 1.2958 but ended lower and close to its daily low of 1.2848. The UK unveiled January inflation data, which came in below the market's expectations, with the CPI at 1.8% YoY and core inflation steady at 1.9% YoY, in line with the Bank of England's latest forecast and surely taking off pressure on policymakers over hiking rates. Producer Prices Output were a bit more encouraging, up 0.4% MoM and 2.4% YoY, while the Retail Price Index fell by more than anticipated, down 0.9% MoM, but up 2.5% YoY. The spike was a result of a report coming from the EU showing that the Union would favor extending the Brexit date, despite no formal request from the UK. Earlier in the day, UK Brexit Secretary Stephen Barclay said that it’s not in anyone's interest to have an extension to Brexit, while Irish PM Varadkar said that there's no such thing as a positive Brexit. Indeed, uncertainty surrounding the UK's departure remains high, resulting in sellers jumping in GBP crosses on spikes. There're no relevant data scheduled in the UK this Thursday. Meanwhile, EU's Tusk said that the EU is still waiting for a concrete, realistic proposal from London.

The 4 hours chart shows that the pair was unable to hold on to gains above the 200 EMA, briefly pierced with Brexit-related headlines now also trading below a bearish 20 SMA, which extends its decline below the larger one. The Momentum indicator in the mentioned chart hovers directionless within negative levels, while the RSI indicator resumed its decline in bearish territory, now heading south at around 38, all of which anticipates another leg lower for this Thursday particularly on a break below 1.2830.  

Support levels: 1.2830 1.2795 1.2760                                               

Resistance levels: 1.2885 1.2930 1.2965    

View Live Chart for the GBP/USD

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