GBP/USD: Bears eye 50% Fibo retracement to 1.2830

GBP/USD is under the weather following a number of misses in data overnight which reflects the impact of Brexit and come in stark contrast to that of the BoE's prior forecasts that were perhaps somewhat ambitious. 

"In the past few months the attention of GBP investors has been dominated more by politics than economics, but this morning’s data provides a strong link between the two," analysts at Rabobank explained, adding, "This morning’s releases of weak December and Q4 UK GDP provides stark proof of the headwinds that have been blowing across the UK economy.  In the final three month of last year, the UK grew by just 0.2% q/q, well below the pace of 0.6% that was registered in the previous 3 months.  In addition, the releases of far weaker than expected December production and construction data highlight the risk that forecasters may not yet be fully prepared for the sharpness of the slowdown."

The BoE, last week, dropped the line that went as follows: "An ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target at a conventional horizon”.  However, the 'computer says no', according to today's data releases and all eyes look to Brexit at this juncture.  

Brexit uncertainties

Brexit related uncertainty has now had a significant economic impact. While the central view in markets is to buy the dip on the prospects for a deal to be struck between the EU and UK in the eleventh hour, the fact that May has so far not been able to prise a compromise in Brussels, returning empty-handed on the Irish backstop, a hard Brexit scenario is still very much on the cards.

"May is now attempting to woo support from the Labour party for an amended Withdrawal agreement by offering to meet them on issues surrounding environmental and workers’ rights.  Clearly, she is using the pressure of a nearing deadline in her attempt to win support for her plan, but this is simultaneously deeply unnerving to the business community," analysts at Rabobank argued. 

GBP/USD levels

Technically, analysts at Commerzbank noted that GBP/USD last week executed a hammer reversal pattern just ahead of the 50% retracement at 1.2830:

"This suggests that the move lower is probably done for now. The market has also reversed just ahead of 1.2808 the 55 day ma. It guards the 1.2669/62 midJanuary and August lows. The intraday Elliott wave counts however remain negative and we will hold onto our newly established shorts for today. Intraday rallies will now find resistance at 1.3024, the 200 day ma, and will stay offered below here. Above here should be enough to cast our eyes back to the 1.3217 recent high."