GBP/USD Forecast: Reality check, Brexit is a lose-lose game for the UK
- Hopes boost sentiment, GBP/USD expected to pick up in the three-month view.
- Brexit non-stop talks don't seem to be the solution, as the main issue has been the same for months.
Following six weeks of declines, the GBP/USD pair finally posted a weekly gain. The Sterling gyrated around Brexit headlines, rising after EU chief Brexit negotiator Michel Barnier and the new UK Brexit secretary Dominic Raab, agreed to non-stop negotiations from now on, to avoid a non-deal Brexit. However, little or none progress has been made over the last months. While most of the withdrawal document has already been agreed, negotiations are stuck around the future trade relationship and the Northern Irish issue, and how to avoid a hard border on the island of Ireland.
The UK will crash out the EU without a deal if they can't reach an agreement before 29 March 2019. Eight months to go, after almost a year-and-a-half of negotiations. Initially, a deadline for the completion of the agreement was next October, but the recent developments and comments from EU's Barnier indicate that he may be willing to extend it to November. Still, hopes dominated the first half of the week, underpinned by a broadly weaker dollar.
The GBP/USD pair fell on Thursday, as Pound bulls got a reality check: the UK government published 24 out of 80 papers planned on how to deal with a no-deal Brexit, with advice for people and business, which highlighted how tough things will be in such case. An increase in credit cards fees, delays in medical treatment, expensive food and red take at the border, are among the most worrisome points of the documents.
The EU has the power, and the UK won't have much choice but to agree to uncomfortable conditions, that may lead to political disruption within May's party, already under fire. As times goes by, is clear that is a lose-lose game for the UK, and the Pound is set to continue suffering from it.
There was no macroeconomic news in the UK, and the upcoming week will also be light, with no first-tier releases scheduled. The most relevant event will be the Inflation Report Hearings next Thursday. In the meantime, escalating tensions on global trade will keep affecting the FX board, with the only case of a GBP/USD advance being a weaker dollar. Still, gains in such scenario should be limited.
GBP/USD technical outlook
The GBP/USD pair continued recovering from the yearly low of 1.2661, but faltered around 1.2900, unable to clear the level. The weekly chart shows that the pair met sellers at the 38.2% of the steady decline between July's high and August low at around 1.2930, which leaves the latest advance as a mere correction, at least as long as the level remains unbroken. In the mentioned chart, technical indicators have barely managed to post shy bounces, with the RSI still near oversold readings, as the 20 SMA accelerates its slump far above the current level, reflecting the dominant bearish trend.
In the daily chart, the pair is currently struggling around a bearish 20 SMA, and also with the 23.6% retracement of the mentioned decline, while technical indicators are trying for a second time this week, to re-enter positive territory, with the RSI currently at 45, somehow indicating the absence of buyers. Should the pair break above the weekly high, at 1.2935, chances are of a recovery up to the 1.3000 price zone, while beyond this last a steeper advance up to 1.3090, the 61.8% retracement of the same slide, is possible. Below 1.2770, on the other hand, the risk turns toward the downside, with a break below the level exposing 1.2720, en route to the mentioned yearly low at 1.2660.
GBP/USD sentiment poll
Sentiment for the Pound, according to the FXStreet Forecast Poll seems to have improved, as the pair is seen holding neutral next week at around 1.2850, with bears and bulls at 50% each, but bulls dominating the longer term perspectives. In the monthly view, the market is now targeting 1.2977, up from the previous week's average target of 1.2879, with bulls rising modestly to 56%. In the three-month perspective, the pair is seen up to 1.3114 on average, up from 1.2953.
The Overview chart shows that in the three time-frames under study, the moving averages are heading up but just modestly. Nevertheless, the largest accumulation of targets is seen around 1.3200 in a 1-month view, while in the longer perspective, 1.3500 seems to be the desired target.
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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.
