GBP/USD Weekly Forecast: Brexit deal approval set to support Sterling after the weekend summit

After the volatile third week of November, the market was much calmer in the fourth week of the month with Thanksgiving holidays lowering the market activity and liquidity. The GBP/USD opened at 1.3832 and slid further to last week’s low of 1.2764 as Spain said it will bloc the Brexit agreement vote if Gibraltar issue is not resolved in the text of the agreement. The UK Prime Minister Theresa May traveled to Brussels to resolve the issue on Wednesday and the next day Brexit negotiators came out with some sort of a free-trade area combining deep regulatory and customs cooperation that boosted Sterling to jump to last week’s high of 1.2929. Nevertheless, the end of the week US Dollar covering saw Sterling give up on gains trading near 1.2830 level as weekend Brexit summit nears and no further clarity on Brexit deal is delivered.

As expected, the Brexit news is once again set to form the future for Sterling. While officials brace for the weekend Brexit summit, the chances remain unchanged with plenty of core issues unresolved yet and a free-trade area concessions stated rather vaguely.

The UK Prime Minister Theresa May said she will be traveling to Brussels for more discussions on Saturday to make sure that the Brexit negotiations proceed with the stamp from the high-level official. 

The Irish border backstop has been a major source of uncertainty about the whole Brexit agreement for many months of intensive negotiation, but there is also the Gibraltar issue that is expected to be on the agenda.

The Gibraltar issue has been the hot topic since Spanish Prime Minister Pedro Sanchez said he will block the voting of the Brexit agreement should the text on Gibraltar remain unchanged. 

The Bank of England November Inflation Report parliamentary hearing on Tuesday last week saw Governor Mark Carney repeating the Brexit uncertainty warning once again while saying that no-deal Brexit is not the most likely scenario.
With the GBP/USD prediction being highly Brexit summit dependent, the technical picture on GBP/USD mounts various indications of the upward potential. Technically the most important signal is a golden cross formation with a 50-day moving average crossing a 100-day moving average to the upside, indicating a bullish trend reversal. 

Emergency Brexit summit

Sunday, November 25 is the date when the Brexit summit will be held as progress on both sides allowed the European Councill to call for the meeting. The Brexit summit on Sunday is expected to approve the Brexit agreement and the declaration on the future relationship between the European Union and the UK.

For the Brexit deal to win the approval on Brexit summit, 20 out of 27 European Union member states must back the deal representing the supermajority of about 65% of the population of the European Union.

The Brexit summit is set to begin on Sunday, November 25 at 9:30.

After the Brexit agreement is approved, the key House of Commons vote is expected to approve the Brexit agreement in a meaningful vote. This is a crucial part for Theresa May government as there are many dissenters opposing the Brexit deal in her own Conservative party already and to pass the Brexit agreement in the UK parliament, the support of opposition will be required. The meaningful vote is expected to pass in December.

If the House of Commons approves the Brexit deal in a meaningful vote, the government will prepare a new piece of legislation that will be passed into law Brexit’s biggest issues, including the agreement on citizens’ rights, the financial settlement and the details of the transition. As details are expected to be discussed politically hot debate is expected.

The ratification of the Brexit agreement by individual EU member states parliaments will follow before the UK formally ends its membership on March 29, 2019.

A 21-month long transition period on the future trade relationship will begin in March 2019 and it will last until December 2020. The UK will formally have no more voting rights in the EU, but will still part of the single market and with the rights regarding free movement across borders and the customs union.

Technical Analysis

USD/GBP daily chart

The GBP/USD is moving in a downward sloping trend with the 2018 low of 1.2662 the immediate target on the downside, before testing 1.2100. The bearish scenario is likely only under the assumption of Brexit summit ending up in failure, similarly to October summit. If the Brexit summit on Sunday delivers what is expected, the GBP/USD will be strongly supported.  The Momentum and the Relative Strength Index both remain in the neutral zone and the Slow Stochastics made a bullish crossover in the oversold territory. Together with the golden cross of a 50-day moving average crossing over a 100-day moving average to the upside, the indicators are pointing rather to the upside for GBP/USD.  The GBP/USD needs to break above 1.3000 to signal a trend reversal targeting 1.3060 before moving to 1.3380 and 1.3460 important Fibonacci level. 

Calendar for the week ahead

The UK economic calendar is light next week with both the Bank of England stress test results and the mortgage approval both negligible in terms of GBP/USD directional move.

It is the ability of the UK Prime Minister Theresa May to deliver the Brexit agreement that is set to decide upon Sterling’s future. 

The UK economic calendar November 26-30

The US third-quarter GDP is expected to confirm the preliminary reading of 3.5% quarterly increase on Wednesday next week. Apart from the GDP figures the core personal consumption expenditure price index is due expected to rise 2% over the year in October and the FOMC meeting minutes on Thursday.

The FOMC meeting minutes are expected to prepare markets for December rate hike with the CME’s Fed watching tool pricing in the 74.1% probability of Fed raising rates by 25 basis points on December 19.

The Brexit deal supernova is still expected to outshine the economic data next week.

The US  economic calendar November 26-30

FXStreet Forecast Poll
 

The FXStreet Forecast Poll estimates GBP/USD to reach 1.2845 next Friday, compared with 1.2794 last week. For the last week of November, the FXStreet Forecast Poll  bearish-to-bullish forecast ratio switched to 47%-24%, down from 62%-23% last week as sideways expectations reached 29%

Forecasts for 1-month ahead remains bullish expecting 1.2951 up from last week's 1.2884. The share of the bearish forecasts dropped to 20%, down from 36% a week ago and the bullish forecast increased slightly to 53% from previous week’s 52%.

The FXStreet Forecast Poll remained prevailingly bullish for 3-month time expecting 1.2763, down from last week's 1.2959 and down from 1.2986 two weeks ago. The share of bearish forecast dropped to 26% from 35% last week and the bullish forecasts increased to 61%, up from 55% last week. 

FXStreet Forecast Poll