GBP/USD Forecast: British pound prepares for Brexit showdown
- GBP/USD has gone into a consolidation phase around 1.3600 after Monday's failed recovery attempt.
- UK employment report failed to trigger a noticeable market reaction.
- UK will present negotiating document on Northern Ireland protocol to EU later this week.
The British pound started the new week on a firm footing but the GBP/USD pair's recovery stalled in the second half of Monday as investors gear up for, yet another, Brexit showdown.
After advancing to a fresh two-week high of 1.3675 during the European trading hours, GBP/USD reversed its direction and posted small daily losses. Currently, the pair is moving in a tight range near 1.3600.
On Monday, British Prime Minister Boris Johnson's spokesman announced that they will be sharing the negotiating document on the Northern Ireland protocol with the European Commission later in the week. "Without new arrangements on governance, the protocol will never have the support it needs to survive," the spokesman reiterated. Reflecting the same sentiment, UK Cabinet Minister and former Brexit Minister Stephen Barclay said the protocol is not working and added that there is recognition on both sides that it needs to work for both communities.
So far, the Brexit-related headlines suggest that neither side is looking to make concessions.
The EU made it clear numerous times that they are not willing to renegotiate the protocol and the UK doesn't think it's working. In case this week's developments hint at a prolonged problem, the GBP is unlikely to capitalize on the Bank of England's hawkish shift in the policy outlook.
Meanwhile, the data published by the UK's Office for National Statistics showed that the ILO Unemployment Rate edged lower to 4.5% in August from 4.6% in July, as expected. Moreover, the publication revealed that the Average Earnings Including Bonuses arrived at +7.2% on a yearly basis, surpassing analysts' estimate of 7%. Investors, however, paid little to no attention to these figures.
GBP/USD Technical Analysis
The near-term technical outlook for GBP/USD seems to have turned bearish with the pair breaking below the ascending trend line coming from late September. Additionally, GBP/USD is trading below the 50-period SMA on the four-hour chart and the Relative Strength Index (RSI) indicator is pushing lower toward 40.
On the downside, two static supports emerge at 1.3560 and 1.3540 ahead of 1.3500 (psychological level).
The initial hurdle now aligns at 1.3600 (psychological level, 100-period SMA) before 1.3650 (static resistance) and 1.3700 (psychological level, 200-period SMA).
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Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
