GBP/USD analysis: political tensions knocked the Pound

Valeria Bednarik FXStreet

GBP/USD Current Price: 1.2711

Brexit cross-party talks ended without an agreement.
EU's parliamentary elections to take place this week and further hit Sterling.

The GBP/USD pair closed the week in the 1.2710 area, its lowest since mid-January, as the Pound plunged alongside Brexit cross-party talks, a "very negative development," as Irish PM Varadkar said. Both parts, PM Theresa May and Labour opposition leader, Jeremy Corbyn, announced the end of talks amid the absence of a "common position," according to PM May. Mr. Corbyn, on the other hand, said that the government hadn't moved its position fundamentally. The clock keeps ticking, as PM May said she would set a timetable for leaving her position after the Houses vote for a fourth time on her withdrawal deal. In the meantime, EU's Parliamentary elections will take place this week, with the UK being forced to participate, another negative factor for the Pound. The UK calendar doesn't include any relevant data at the beginning of the week, although inflation will take center stage this week, with the Inflation Report Hearings scheduled for Tuesday and April CPI for Wednesday.

The GBP/USD pair has been on a franc decline ever since hitting 1.3176 on May 3, extremely oversold after losing roughly 450 pips without an interim correction, yet technical readings continue to indicate that more declines are likely. In the daily chart, the Momentum indicator is at its lowest since mid-May, maintaining its bearish strength while the RSI indicator also heads sharply south, currently at around 28. In the 4 hours chart, the Momentum indicator is trying to recover from extreme readings, yet the RSI maintains its downward slope at 14, while the pair develops some 100 pips below an almost vertically bearish 20 SMA. Given the extreme conditions, the risk of an upward corrective movement is high, although selling interest would likely return if the pair approaches the 1.2800 price zone. The next relevant support comes at 1.2668, the low set on January 15.

Support levels: 1.2705 1.2670 1.2630

Resistance levels: 1.2740 1.2785 1.2820

View Live Chart for the GBP/USD

Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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