GBP/USD: steeper decline expected once below 1.2555

Valeria Bednarik FXStreet

GBP/USD Current price: 1.2595

Boris Johnson is likely to become the next UK PM.
BOE's Governor Carney reiterated that gradual rate hikes are on the table.

The GBP/USD pair spent the week trying to extend gains beyond the 1.2700 mark but finally collapsed Friday, to settle below the 1.2600 level for the first time this year. The dollar's broad strength was partially responsible for the decline, but also the noise coming from Tories related to PM May's succession as Tory leader. On Thursday, Conservative MPs had their first ballot, with Boris Johnson being the overall winner. Johnson has stated this past week that he will take the kingdom out of the EU by October 31, with or without a deal. He later poured some cold water on his comments, yet the damage was done. Meanwhile, the EU believes that Johnson won't risk a no-deal Brexit but rather ask for another extension. EU politicians keep repeating that the withdrawal deal is not open to renegotiating.

On Friday, BOE's Governor Carney delivered the central bank's annual report and said that the upward pressure on prices is likely to build if the economy performs as the MPC expects, which means that policymakers will hike, although he repeated that it would happen at a gradual pace and to a limited extent. This Monday, the UK macroeconomic calendar will include the May Rightmove House Price Index and the Inflation Hearings report.

The daily chart for the GBP/USD pair shows that it collapsed Friday after spending the week around a firmly bearish 20 SMA, while technical indicators turned sharply lower, the Momentum barely entering negative ground and the RSI currently at 34, this last reflecting the strength of sellers. Shorter term, and according to the 4 hours chart, the bearish case is also favored, as the pair is currently developing below all of its moving averages, with the 20 SMA about to cross below the 10 SMA, both in the 1.2670/80 price zone, while technical indicators stalled their declines, but were unable to bounce, now consolidating in oversold territory. May's monthly low at 1.2558 is now the immediate support, with a break below it likely resulting in a steeper slide.

Support levels: 1.2555 1.2510 1.2475

Resistance levels: 1.2630 1.2670 1.2705

View Live Chart for the GBP/USD

Author

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.

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