GBP/USD Forecast: Sterling benefits from Germany dropping key Brexit demands, needs to stay above 1.2950 to resume the uptrend

Mario Blascak, PhD Independent Analyst

Sterling jumped up almost 1% to sub 1.3000 region gaining 200 pips on a day after the news of Germany and the UK both dropping the key Brexit demands.
The UK services PMI rose to 54.2 in August after unexpectedly strongly falling to 53.5 in July, beating the market expectations.
The release of Brexit-related uncertainty helps Sterling to regain positions near psychological level averting scenario of selloff towards cyclical lows of 1.2666.

Sterling regained the strength on Wednesday trading up almost 1% just below 1.3000 area after the news of both Germany and the UK dropped key Brexit demands. While breaking news saw Sterling shooting higher by 200 pips, details are not yet known.

Sterling was under selling pressure stemming from arising Brexit uncertainty after being rejected from the correction higher at the 55-day moving average of 1.3040 last week. The news of the UK services PMI increasing to 54.3 in August, surpassing the market expectations of 53.9. Rising UK services PMI helped to ease the pressure as the US Dollar benefits from the safe-haven status at times of emerging markets volatility that saw Sterling falling as low as 1.2785 earlier on Wednesday.

Brexit uncertainty was highlighted by the rejection of current Brexit proposals by the EU chief negotiator Barnier on Monday with the Bank of England officials remarks about Brexit uncertainty repeatedly highlighting the issue during the Inflation Report parliamentary hearing on Tuesday.

News of the Bank of England Governor Mark Carney standing ready to stay at the helm of the Bank of England helped to ease concerns over Brexit. Sterling was sold off massively on Monday after European Union chief Brexit negotiator, Michel Barnier said he strongly opposed Britain’s latest Brexit proposal.

Technically the GBP/USD is facing a psychological resistance at 1.3000 round big figure. The GBP/USD resumed the upward rising trend with support at around 1.2950. The technical oscillators including the Relative Strength Index and Momentum turned higher given the relative strength of the upmove with the GBP/USD possible retreating lower towards 1.2900 area as the details of Brexit demands relaxation disseminate. As long as GBP/USD stays above 1.2950, the currency pair is back in the upward rising trend with 1.3040 last week’s high being the next target.

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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