GBP/USD analysis: Pound collapses on Brexit

Valeria Bednarik FXStreet

GBP/USD Current price: 1.2849

Brexit's back and forth putting at risk May's continuity as PM.
UK employment data could exacerbate the decline if it disappoints.

The GBP/USD pair gapped lower at the weekly opening and was unable to fill it, collapsing to 1.2826 as the Brexit saga continues. Not only weekend news indicated that several UK Ministers were willing to resign, but also, a couple of Cabinet members said this Monday that there's no chance PM May's plan will pass the Parliament, therefore jeopardizing May's leadership. The market was waiting for an emergency Cabinet meeting which finally didn't occur. A special EU summit on Brexit is now out of the table for this month, and the market is doubting about a possible meeting in December. The Pound got a boost from an FT news, indicating that EU's Chief Negotiator Barnier said that main elements of Brexit treaty text was ready, but resumed its decline after the market realized the Irish border issue remains unsolved. Risk aversion extended into the US session with the pair trading near the mentioned low. The UK will release its latest employment figures this Tuesday. The UK unemployment rate for the three months to September is expected to remain unchanged at 4.0%, while wages including bonuses are seen up by 3.0% vs. the previous 2.7%. Disappointing data could exacerbate the decline, while better-than-expected numbers will hardly be enough to offset Brexit woes.

The pair peaked at 1.2935 on short-lived Brexit hopes, now trading roughly 100 pips below the level. The risk remains skewed to the downside, as in the 4 hours chart, technical indicators corrected extreme oversold conditions before resuming their declines, now maintaining their bearish slopes, while the price develops well below its moving averages. The 20 SMA gains downward traction and is about to cross below the 200 EMA, this last at around 1.3015. The decline is set to extend as long as Brexit negotiations remain in a stalemate on the Irish border.

Support levels: 1.2825 1.2790 1.2750

Resistance levels: 1.2880 1.2935 1.2960

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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