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GBP/USD: Bears back in play, Hourly Ichimoku Cloud is bearish, Brexit and dollar politics in focus

  • GBP/USD is making a move to the downside, losing its title as the top performer at the start of the week as the dollar firms to test the H&S neckline despite Trump's complaints that it is too strong.
  • On a techncial basis, the pair triggered a sell-opportunity on the hourly Ichimoku Cloud criteria for a short position. 
  • GBP/USD is currently trading at 1.3200, slightly up from the low of 1.3179 and below the highs of 1.3263. 

This is a pivotal time for the pound, on the Brexit front. 

Here are the key points to be aware of, as explained by analysts at Rabobank:

  • On 27 September a parliamentary vote on the course of Brexit took the threat of a hard (no-deal) Brexit on 29 March off the table.
  • The inflection point was the adoption of an amendment that institutionalized PM May’s promises to give parliament a say on the course of Brexit at the middle of March, including a vote on an extension of article 50.
  • The opposition party Labour has shifted their Brexit position to supporting a second referendum, thereby increasing the odds of a Bremain.
  • These events might create a perfect storm for the EU-UK deal to get parliamentary approval on 12 March.
  • In case of rejection, MP’s are expected to vote in favour of an extension of article 50 on 14 March and EU approval does not look problematic.
  • We still see an orderly Brexit as the most likely outcome as the extension will give the British Parliament more time to find a consensus on the desired EU-UK deal.
  • The chances of a hard Brexit also remain uncomfortably high on the back of the political gridlock on Brexit in the UK.

Across the pond, eyes have been on the US economic performances since the Fed switched to neutral. While rate hikes are not off the table, the market has priced them out for the time being. However, last week's US GDP data threw a lifeline to the greenback and this week's nonfarm payrolls will be critical considering the positioning of the market in the dollar a the moment.  

"Following two consecutive reports with initial 300k+ prints, we look for payrolls to mean-revert to 190k in February. We also expect the phase-out of the impact from the government shutdown to be reflected on a tick down in the unemployment rate to 3.9%. Lastly, we forecast wages to rise by a “soft” 0.3% m/m pace (3.3% y/y) in February aided by a favourable reference week," analysts at TD Securities explained.

Dollar firmer despite Trump

At the same time, Trump is at war with China over trade. while there have been some bullish reports over the weekend, citing progress made towards a trade truce, Trump has been vocal about the dollar, once again criticising the Fed and calling for a softer greenback. Indeed, the DXY is at a critical juncture, testing the neckline of the H&S resistance to the upside and a break there, around 96.70, opens the risk of a resurgence of dollar bulls targetting space back onto the 97 handle and daily highs of 97.70's.

GBP/USD levels

With respect to the current price action, the pound has met all of the four criteria on the Ichimoku Cloud for a short position with the lagging span and price both below the cloud, the Tenken-sen crossing below the Kijun-sen and a bearish cloud in development with future resistance at the cloud and just below the pivot with confluence of the 21-hr SMA at 1.3210/20. S1 is located at 1.3159, S2 at 1.3108 and S3 is at 1.3045. 

Author

Ross J Burland

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

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