GBP/USD Forecast: Hinging on these two first acts from PM Boris Johnson

GBP/USD has been rising ahead of Boris Johnson's entry into No. 10.
Johnson's first speech as PM and his pick of Chancellor are critical.
Wednesday's technical chart shows that downside momentum has waned.

Yohay Elam FXStreet

Boris Johnson, PM – a moment that many believed will never come is happening today. The former foreign secretary, mayor of London, editor, and journalist is set to enter 10 Downing Street with one gargantuan task – delivering Brexit by October 31st. During the leadership contest, Johnson has promised to leave the EU by the deadline – "do or die". While the pound has been falling on the prospects of a no-deal Brexit in the past few weeks, it enjoys a reprieve today.

Is it a real recovery or just another "dead cat bounce" before hitting a new two-year low? The answer significantly depends on Johnson's first day in office. The controversial candidate will make his initial speech as PM just after being appointed by the Queen. If he repeats his hardline stance on Brexit, the pound may turn back down. However, if he sticks to the recent optimism that he conveyed without vowing a hard exit, Sterling may rise.

Immediately afterward, Johnson will begin appointing his cabinet and markets will closely watch his choice of Chancellor of the Exchequer. Outgoing Chancellor Phillip Hammond is a staunch Remain supporter and a well-respected figure. He has pledged to resign before being sacked. If Johnson appoints a like-minded responsible professional, the pound may advance. However, if his choice is an inexperienced loyalist Brexiteer, the currency may turn south.

GBP/USD's current rise may be seen as profit-taking after cable's previous downfall – dipping below 1.2400 and hitting the lowest in two years. However, some hope that Johnson – often criticized for caring only about himself – will change his tack on Brexit and opt for a softer exit to safeguard the economy and his seat.

See GBP/USD: If Boris Johnson becomes PM, volatility will rise, but Sterling may not necessarily suffer

Earlier, the US dollar gained ground as the US and China announced fresh face-to-face high-level talks – the first since May. A better atmosphere around trade reduces the chances of extensive stimulus from the Federal Reserve. Nevertheless, US Commerce Secretary Wilbur Ross has downplayed expectations.

US economic indicators include Markit's Purchasing Managers' Indicators (PMIs) and New Home Sales.

All in all, Boris Johnson is in the limelight.

GBP/USD Technical Analysis

GBP/USD has tackled the 50 Simple Moving Average on the four-hour chart which coincides with the 1.2480 which was a swing low in early July – critical resistance. Further up, 1.2510 is where the 100 SMA meets the chart, and 1.2560 was a peak earlier this month.

Support awaits at 1.2440 which provided support in mid-July and also earlier this year. It is followed by the recent swing low of 1.2420 and by the 2019 low of 1.2380 recorded last week.

Downside momentum is waning and the Relative Strength Index is moving up – both positive signs. Nevertheless, the pair is capped by critical SMAs, as mentioned earlier.

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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