GBP/USD Analysis: Brexit optimism offset BoE negate rate talks, 1.3000 holds the key for bulls


  • GBP/USD witnessed aggressive selling on Thursday amid BoE negative rates talks.
  • Positive Brexit-related headlines led to a goodish intraday bounce of over 130 pips.
  • A sustained move beyond the 1.3000 mark needed to confirm any additional gains.

The GBP/USD pair had some good two-way price swings on Thursday and was influenced by a combination of diverging forces. The pair witnessed some aggressive intraday selling after the Bank of England surprised investors by saying that it had briefed policymakers on how negative interest rates could be implemented. Earlier, the BoE left its benchmark interest rates and the Asset Purchase Program unchanged at 0.10% and £745 billion, respectively. The UK central bank highlighted the risk of a longer period of elevated unemployment and uncertain growth outlook. This, in turn, took its toll on the British pound and dragged the pair to two-day lows, around the 1.2865 region.

The pair, however, quickly changed course and rallied back closer to the key 1.3000 psychological mark in reaction to optimistic Brexit-related comments by the European Commission President Ursula von der Leyen, saying that a trade deal between the EU and the UK is still possible. This coupled with the emergence of some fresh USD selling further collaborated to the pair's solid rebound of over 130 pips. The USD lost some additional ground following the release of a rather unimpressive US macro data. In fact, the Philly Fed Manufacturing Index edged lower to 15 in September from 17.2 while the Initial Jobless Claims, Building Permits and Housing Starts all fell short of market expectations.

The pair finally settled near the top end of its daily trading range, albeit lacked any strong follow-through and remained below the 1.3000 mark through the Asian session on Friday. Bulls largely shrugged off slightly better-than-expected UK Monthly Retail Sales figures, which came in to show a growth of 0.8% MoM in August as against 0.7% expected. The core retail sales (excluding the auto motor fuel sales) increased +0.6% MoM as compared to +0.4% expected and +2.0% previous. With Friday's key UK macro data out of the way, the incoming Brexit-related headlines will continue to play a key role in influencing the GBP price dynamics and produce some meaningful trading opportunities. Later during the early North American session, the release of the Michigan Consumer Sentiment Index for September will also be looked upon for some trading impetus on the last day of the week.

Short-term technical outlook

From a technical perspective, the lack of any strong follow-through buying warrants some caution before positioning for any further gains. Bulls might need to wait for a sustained strength beyond the 1.3000 mark. Above the mentioned handle, the pair is likely to surpass the 1.3035-40 supply zone and extend the positive move towards reclaiming the 1.3100 round-figure mark. The momentum could further get extended towards the next major hurdle near the 1.3175-80 region.

On the flip side, immediate support is now pegged near the 1.2925 region, which is closely followed by the 1.2900 round-figure mark. Any subsequent slide might now be seen as a buying opportunity and remain limited near the 1.2875-65 area. That said, some follow-through selling might negate prospects for any further gains. The pair might then turn vulnerable to accelerate the fall back towards the 1.2800 mark before eventually dropping to multi-week lows, around the 1.2765-60 zone.

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