GBP/USD consolidates within pennant above 1.3350 as sterling awaits Brexit updates

GBP/USD is consolidating just above 1.3350 as sterling traders await further information on the state of Brexit talks.
The pair has formed a short-term pennant, implying a breakout is likely, subject to fundamental confluence.

Joel Frank Independent Analyst

GBP/USD closed Tuesday trade with gains of a little over 30 pips or just shy of 0.3% amid broadly soft US dollar conditions. The pair currently trades just above 1.3350.

It’s quiet… too quiet

For the first time in a long time, it was all was very quiet in terms of Brexit news flow on Tuesday, aside from UK Minister Michael Gove reiterating his usual stance that the EU needs to move for there to be a deal. As things stand right now, UK PM Boris Johnson and EU Commission President Ursula von der Leyen are supposedly supposed to be talking at some point later in the week, with the PM seeing the conversation as an opportunity to push a deal over the line.

There has also been some chatter surrounding 1) a mini-deal to give more time for a full deal to be agreed upon (in other words, an extension) and 2) a review clause after 10-15 years for both sides to assess whether or not they are happy with how things stand. The former suggestion goes strongly against the current rhetoric from the current Brexiteer UK government, while the latter suggestion might be interesting in so far as it might encourage more flexibility in negotiations if both sides know there will be a chance to tweak aspects of any deal they don’t like down the line.

Amid the lack of new information regarding the state of EU/UK trade negotiations to drive GBP, the currency has broadly conformed to US dollar flows/global risk dynamics. Unfortunately, quiet on the Brexit front is unlikely to persist, and as fresh information comes out, GBP is likely to become choppy again.

GBP/USD consolidates within short term pennant, subject to breakout

Recent GBP/USD price action seems to be consolidating nicely within a pennant formation; the upper bounds of this pennant is a downtrend linking the Monday and Tuesday highs at just under 1.3400 and 1.3380 respectively – these two levels will be the first areas of resistance to note in case of an upside break of the pennant, which could perhaps be spurred by fresh signs of progress towards a Brexit deal.

The lower bounds of this pennant is an uptrend linking last Thursday’s low at 1.3200 to this Monday’s low at 1.3264 and Tuesday’s low at just below 1.3300. These levels will be the most important areas of support to note in case of a downside break of the pennant. A downside break of this pennant could coincide with negative news on the state of Brexit talks (i.e. in the worst-case scenario, say id talks collapsed).

GBP/USD one hour chart

Author

Joel Frank

Independent Analyst

Joel Frank is an economics graduate from the University of Birmingham and has worked as a full-time financial market analyst since 2018, specialising in the coverage of how developments in the global economy impact financial asset

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