• A combination of factors prompted some follow-through selling around GBP/USD on Friday.
  • Diminishing offset for an imminent BoE rate hike, fresh Brexit jitters undermined the sterling.
  • Sustained USD selling, reports of a Brexit compromise helped the pair to gain traction on Monday.

The GBP/USD pair extended its rejection slide from the very important 200-day SMA and witnessed some selling for the second successive session on Friday. The British pound's relative underperformance comes amid diminishing odds for an early policy tightening by the Bank of England (BoE) and fresh Brexit jitters. Against the backdrop of softer UK consumer inflation figures, the disappointing release of UK Retail Sales added to signs of weakness in the economic recovery. This, in turn, forced investors to scale back their expectations for an imminent BoE rate hike move in November.

Apart from this, reports that the European Union could terminate the post-Brexit trade deal if the UK government pulls out of its commitments over Northern Ireland (NI) further weighed on the sterling. British Prime Minister Boris Johnson has threatened to unilaterally suspend parts of the NI Protocol using the powers granted in Article 16 of the pact. Both sides have held crunch talks in a further attempt to resolve the issues. Nevertheless, the pair dropped to a three-day low in reaction to the headlines and seemed rather unaffected by the prevalent US dollar selling bias.

Easing concerns about a credit crunch in China's real estate sector boosted investors' confidence. This, along with a modest pullback in the US Treasury bond yields undermined the safe-haven greenback, though did little to lend any support to the major. Moreover, the markets also seem to have fully priced in the prospects for an early policy tightening by the Fed. This was evident from a rather muted reaction to Fed Chair Jerome Powell's comments on Friday, reiterating that the US central bank will soon begin tapering its massive pandemic-era stimulus.

Meanwhile, positive Brexit-related headlines over the weekend provided a fresh lift to the major on the first day of a new week. The language used by allies of UK Brexit minister David Frost suggested there could be room for a compromise on the issue. There has been media speculation that Frost could support a “Swiss-style” governance arrangement for the NI protocol, though the role of the European Court of Justice remained the biggest sticking point. Apart from this, sustained USD selling assisted the pair to reverse a major part of the previous session's losses.

Moving ahead, there isn't any major market-moving economic data due for release on Monday, either from the UK or the US. Hence, the market focus will remain on fresh Brexit developments. Apart from this, the broader market risk sentiment will influence the USD price dynamics and provide some impetus to the major.

Technical outlook

From a technical perspective, last week’s corrective pullback stalled near the lower boundary of a three-week-old upward sloping channel. The mentioned support, currently around the 1.3735 region, should now act as a key pivotal point for short-term traders. A sustained breakthrough, leading to a subsequent slide below the 1.3700 mark will shift the near-term bias in favour of bearish traders. The pair might then accelerate the fall towards intermediate support near mid-1.3600s before eventually dropping to the 1.3600 round figure.

On the flip side, any subsequent move beyond the 1.3800 mark might continue to confront a stiff resistance near a short-term descending trend-line extending from late July, around the 1.3825 region. This is closely followed by the 1.3850-60 confluence barrier, comprising the very important 200-day SMA and the top end of the ascending channel. A sustained strength beyond will set the stage for additional gains and allow bulls to aim back to reclaim the 1.3900 mark. Some follow-through buying has the potential to push the pair further towards the 1.3960-65 resistance en-route the key 1.4000 psychological mark.

fxsoriginal

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended Content


Recommended Content

Editors’ Picks

GBP/USD rises above 1.3300 after UK Retail Sales data

GBP/USD rises above 1.3300 after UK Retail Sales data

GBP/USD trades with a positive bias for the third straight day on Friday and hovers above the 1.3300 mark in the European morning on Friday. The data from the UK showed that Retail Sales rose at a stronger pace than expected in August, supporting Pound Sterling.

GBP/USD News
USD/JPY keeps BoJ-led losses below 142.50, Ueda's presser eyed

USD/JPY keeps BoJ-led losses below 142.50, Ueda's presser eyed

USD/JPY remains in the red below 142.50 after the Bank of Japan announced on Friday that it maintained the short-term rate target in the range of 0.15%-0.25%, as widely expected. Governor Ueda's press conference is next in focus.  

USD/JPY News
Gold consolidates weekly gains, with sight on $2,600 and beyond

Gold consolidates weekly gains, with sight on $2,600 and beyond

Gold price is looking to build on the previous day’s rebound early Friday, consolidating weekly gains amid the overnight weakness in the US Dollar alongside the US Treasury bond yields. Traders now await the speeches from US Federal Reserve monetary policymakers for fresh hints on the central bank’s path forward on interest rates.

Gold News
Shiba Inu is poised for a rally as price action and on-chain metrics signal bullish momentum

Shiba Inu is poised for a rally as price action and on-chain metrics signal bullish momentum

Shiba Inu remains strong on Friday after breaking above a symmetrical triangle pattern on Thursday. This breakout signals bullish momentum, further bolstered by a rise in daily new transactions that suggests a potential rally in the coming days.

Read more
Bank of Japan set to keep rates on hold after July’s hike shocked markets

Bank of Japan set to keep rates on hold after July’s hike shocked markets

The Bank of Japan is expected to keep its short-term interest rate target between 0.15% and 0.25% on Friday, following the conclusion of its two-day monetary policy review. The decision is set to be announced during the early Asian session. 

Read more
Moneta Markets review 2024: All you need to know

Moneta Markets review 2024: All you need to know

VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.

Read More

Majors

Cryptocurrencies

Signatures