GBP/USD Forecast: Ready to resume its falls? Merkel may say Nein to Johnson

GBP/USD has been retreating from the highs reached after Merkel's comments.
The Johnson-Merkel meeting will be closely watched by markets.
Wednesday's four-hour chart is pointing to potential gains for GBP/USD.

Yohay Elam FXStreet

Is Germany ready to compromise with the UK on Brexit? Pound bulls are having second thoughts after they initially sent GBP/USD surging. Nevertheless, sterling is trading above the levels that preceded German Chancellor Angela Merkel's comments on the Irish backstop.

The soft-spoken said that the EU is ready to look for practical solutions in the most thorny issue related to the UK's exit from the EU. She added that the backstop is a matter for the Political Declaration (PD) that can be altered while sticking to the bloc's stance that the Withdrawal Agreement (WA) cannot be changed. The pound further advanced on reports that British officials are having informal conversations with their European peers.

UK prime minister Boris Johnson is set to travel for a meeting with Merkel later today and investors are waiting for clarifications. He will then travel to Paris for an encounter with French President Emmanuel Macron.

There are good reasons to doubt a breakthrough that will avoid hard Brexit.

Norbert Röttgen, a close ally of Merkel, has said that the PM's visit to Berlin "will not change the German stance." Moreover, European Commission President Donald Tusk instantly rejected Johnson's request to remove the backstop, by labeling it as unrealistic in a tweet:

Those against the backstop and not proposing realistic alternatives in fact support reestablishing a border. Even if they do not admit it.

Reports in the British press say that the PM will now suggest a temporary UK-Ireland bilateral agreement that guarantees no hard border. However, that would break the integrity of the EU's customs union and single market – and will likely be rejected as well.

With 71 days to go until Brexit, preparations for a no-deal exit are accelerating. London announced it would pull out British diplomats from non-essential EU meetings from September 1st – in order to focus on the exit.

All in all, Tuesday's optimism seems unjustified.

Will GBP/USD fall?

The USD awaits a test of its own later today – the release of the Federal Reserve's meeting minutes. The document may provide more details on the Fed's thinking around that meeting – when they decided to cut rates. Markets want to know the bank's tendency to reduce rates in September.

Back then, Chair Jerome Powell said that the cut is only a "mid-cycle adjustment" and not the beginning of a long cycle. However, disappointing economic figures overseas, Trump's new tariffs, and the inversion of the yield curve have led markets to expect further stimulus.

See FOMC Minutes Preview: The Fed vs the markets

GBP/USD Technical Analysis

Contrary to the fundamental picture, technicals are pointing higher.

GBP/USD is trading in an uptrend channel since the middle of last week, reversing a downtrend. Momentum is positive and the recent surge has sent the currency pair above the 50 and 100 Simple Moving Averages – all bullish signs.

Some resistance awaits at 1.2100, which capped cable in recent days. It is followed by the mid-August high of 1.2210, and then by the early August peak of 1.2250. 1.2380 is next.

Support awaits at 1.2080 which held the pair up late last week. It is followed by 1.2040, that provided support last week, and by the 2019 trough of 1.2015. 1.2000 and 1.1985 are next.

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.

GBP/USD bounces off lows, back above 1.3200

After bottoming out near 1.3160, GBP/USD manages to regain a bit of shine and reclaim the 1.3200 mark and beyond at the end of the week. Stronger-than-expected UK Retail Sales data seem to be helping the British Pound limit its losses, while the chaotic UK political environment keeps the bulls at bay for now.

EUR/USD looks consolidative around 1.1460

EUR/USD stages a modest rebound after slipping to a three-month low below 1.1420 at the end of the week. That said, the pair now looks to consolidate humble gains just above 1.1460 despite growing uncertainty surrounding the next round of US-Iran negotiations, which keeps the US Dollar’s downside contained.

Gold slips back to six-day lows, targets $4,100

Gold retreats for the third consecutive day on Friday, eroding gains seen in the first half of the week and approaching the key $4,100 mark per troy ounce. Indeed, the precious metal continues to face headwinds from the Fed's hawkish stance and renewed uncertainty surrounding the next round of US-Iran negotiations.

Solana extends correction despite ETF inflows, RWA adoption

Solana (SOL) price edges below $70 extending its losses for the fourth straight day this week. The institutional demand for Solana is building, with steady inflows so far this week and Morgan Stanley’s amended S-1 filing for a Solana-focused Exchange-Traded Fund.

The Iran war didn't break the US economy, but what happens next?

Nearly four months after the start of the Iran war, the US economy remains remarkably resilient. While the conflict initially triggered a severe disruption to global energy markets and a sharp rise in Oil prices, recent diplomatic progress between Washington and Tehran has eased concerns about a prolonged supply shock.

Regime change: Inside Kevin Warsh's first move to make the Fed unreadable on purpose

The rate did not move. That was the least interesting thing about Kevin Warsh's first meeting in charge of the Fed. The FOMC held its benchmark at 3.50%-3.75% for the fourth straight meeting, exactly as priced, and then the new chair used his first press conference to dismantle the machinery the market has leaned on for a decade.