GBP/USD Forecast: Time is running out for Brexit and for the narrowing wedge

GBP/USD is consolidating around 1.31 amid growing Brexit uncertainty.
Tension towards the US NFP limits volatility which could erupt later on.
The chart shows that cable is trading in a narrowing wedge.

Yohay Elam FXStreet

GBP/USD is trading around 1.3100, confined to a narrow range. Such limited movements are normal on Jobs Friday. Tension is mounting towards the US Non-Farm Payrolls report.

Official expectations stand on a modest gain of 165K in January, half of the previous increase which was outstanding. However, real or "whisper" projections are probably higher after the ADP NFP for private sector jobs beat expectations. Wages are projected to increase by 0.3% MoM and 3.2% YoY.

After the dovish Fed decision on Wednesday, only a superb employment report could raise expectations for a rate hike. The central bank pledged patience and downed the US Dollar, but the move did not last for too long. End-of-month flows and the notion that the US economy is still doing much better than its peers provided support to the greenback.

Brexit has become a "game of chicken" between the UK which wants to renegotiate the Irish Backstop and the EU which rejects any reopening of the talks. The clock is ticking towards March 29th, Brexit Day, and the default option remains a hard Brexit. Reports that the EU demands £39 billion divorce bill to be also paid in the absence of an accord did not help sentiment.

UK PM Theresa May has moved from trying to convince hard-Brexiteers to try to woo some members of the opposition. She reportedly offered several Labour members representing Leave constituencies additional funds to their regions in return for support. Labour leader Jeremy Corbyn has not weighed against these attempts.

Further Brexit headlines may rock the pound, as the clock shows 56 days to go.

UK Manufacturing PMI is set to have a limited impact on GBP/USD, and the same goes for trade talks between the US and China, which are making slow progress. Significant surprises are needed on these two fronts to make a splash.

GBP/USD Technical Analysis

Pound/dollar is trading in narrowing wedge, or triangle, as shown by the thick black lines on the four-hour chart. While choppy trading has made it rough on the edges, the narrowing range is clear to see.

Technical analysis textbooks suggest that when a breakout comes, it may be quite significant. The NFP may trigger a move. But to what direction?

Momentum is slight to the downside but the Relative Strength Index is stable, and the pair holds above the 50 Simple Moving Average.

Support awaits at 1.3080 which was a swing low earlier in the day. 1.3050 follows closely. It serves as support earlier in the week. 1.3010 was the low point after the break above 1.3000 and where upside support begins. The next lines are 1.2975 and 1.2930, which were noteworthy on the way up.

Resistance awaits at Thursday's peak of 1.3160. 1.3200 was a swing high earlier, and 1.3220 is the cycle high. 1.13300 and 1.3375 are next up.

More: GBP/USD has more room to fall than rise ahead of the NFP — Confluence Detector

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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