GBP/USD Forecast: Solid wage growth supports Sterling while Brexit uncertainty persists

Mario Blascak, PhD Independent Analyst

The GBP/USD is trading up 0.4% at around 1.2900 ahead of the UK labor market data after slumping more than 1% on Monday on escalating Brexit uncertainty.
The UK pay growth is expected to accelerate with total pay rising 3.0% y/y.
The GBP/USD currency pair needs to close the gap rising to 1.2960 before resuming a downtrend with 1.2800 first target before falling towards 1.2662 cyclical low from 2018.

The GBP/USD is trading up 0.4% at around 1.2900 ahead of the UK labor market report that is expected to see the regular pay rise 3.1% in the three months to September period matching the highest pay rise in a decade from a month ago, while total pay is set to accelerate to 3.0% y/y in the same month. The unemployment rate is set to remain stagnant at four decades low of 4.0%. The UK data are expected to confirm the labor market tightness that justifies the path of a gradual monetary tightening by the Bank of England.

The GBP/USD opened this week at 1.2920 with the gap on the downside on Monday after closing at 1.2960 and the rumors of four UK government ministers stepping down in the final phase of Brexit negotiations saw it falling more than 1% to 1.2829.

The Bank of England Deputy Governor Broadbent also joined the public Brexit debate saying that “if we were to leave without a deal, likely you would see currency fall” while stressing out that reaching the deal is still the most likely outcome.

Contradictory Brexit headlines keep rocking the market with November Brexit summit scrapped as UK Cabinet is not ready to approve the Brexit deal and convince the parliament so the next month's summit might take place on 13-14 December. According to the FT report, the EU chief Brexit negotiator Michel Barnier said the Brexit Treaty text is ready, but the statement from the UK government spokesman denied the news with Sterling moving up and down within 1.2840-1.2940.

Technically, the GBP/USD currency pair reversed the last week’s attempt to break higher as Brexit optimism faded away. The GBP/USD currency pair opened with the gap to the downside and now it is trading within downward sloping trend capped by trendline resistance at 1.2920 and a 55-period moving average at 1.2930. All the technical oscillators including Momentum, the Relative Strength Index and Slow Stochastics are pointing higher after emerging from the oversold territory. The GBP/USD currency pair opened with the gap on the downside and in the wave of Brexit uncertainty, it needs to close the gap rising to 1.2960 before resuming a downtrend with 1.2800 first target before falling towards 1.2662 cyclical low from 2018.

GBP/USD 1-hour chart

Author

Mario Blascak, PhD

Independent Analyst

Dr. Mário Blaščák worked in professional finance and banking for 15 years before moving to journalism. While working for Austrian and German banks, he specialized in covering markets and macroeconomics.

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