GBP/USD drops as no-deal Brexit fears dominate ahead of UK PM election outcome

Key UK lawmakers threaten/announce resignations fearing PM hopeful Johnson’s readiness for no-deal Brexit.
USD strength on trade/political positives also weighs on the pair.
Results of the Tory Leadership Contest will be in the spotlight.

Anil Panchal FXStreet

After weeks of drama surrounding the UK’s leadership contests, the day is finally here when the British Conservatives will announce their next leader on 10:45 GMT Tuesday. Though, anxiety over the downside growth risks emanating from the no-deal Brexit scenario, given the frontrunner Boris Johnson wins, drags the GBP/USD pair down to 1.2460 heading into the London open.

Despite largely expected to come out as a winner, sustained pledge for leaving the EU on “do or die” basis by October 31 made Mr. Johnson despicable amongst the UK’s political fraternity. Not only Chancellor Phillip Hammond and Justice Secretary David Guake but key Tory policymaker Rory Stewart and Foreign Office Minister Sir Alan Duncan also announce their readiness to resign immediately after the result if Boris Johnson become the next UK Prime Minister (PM),

Elsewhere, the US Dollar (USD) gains across the board after the Congress agreed over the 2-year debt/spending limit. Also adding to the greenback strength could be positive developments surrounding the US-China trade deal.

While British lawmakers are likely to resign if Mr. Johnson wins, which is almost certain, and can further weaken the British Pound (GBP), the Guardian came out with a news report signaling that some of the Tory rebels have already warned the ex-London Mayor to change his outlook towards Brexit or face fight for survival despite being the PM.

Other than political/trade news, the US Housing Price Index, Existing Home Sales and Richmond Fed Manufacturing Index are some other catalysts to follow. While Richmond Fed Manufacturing Index is likely to improve from 3 to 5, Existing Home Sales aren’t expected to change from 5.34 million whereas the Housing Price Index might soften to 0.3% versus 0.4% prior.

Technical Analysis

With the 100-bar moving average on the 4-hour chart (4H 100MA) limiting the pair’s immediate upside around 1.2530, chances of its gradual declines to 1.2440 horizontal support comprising early-month lows and mid-month highs seem brighter. In a case prices slip beneath 1.2440, latest lows surrounding 1.2382 and April 2017 bottom close to 1.2365 can lure sellers.

Meanwhile, an upside clearance of 1.2530 can trigger the pair’s upside targeting mid-month top around 1.2580.

Author

Anil Panchal

FXStreet

Anil Panchal has nearly 15 years of experience in tracking financial markets. With a keen interest in macroeconomics, Anil aptly tracks global news/updates and stays well-informed about the global financial moves and their implications.

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