GBP/USD has been quite a show again this week with two way, or even four-way business having met lows at 1.2088, rallying hard in the PM May hard-Brexit U-turn overnight to 1.2325.
GBP/USD price action
We went from the 1.2166 lows again late European trade ahead of Wall Street's open before reaching recent highs 1.2233, and well, you guessed it, back to trade below the 1.22 handle again and to recent lows of 1.2181.
GBP/USD Forecast: relief rally completed, back to sell mode
So, what is going on?
Brexit and pound feverishness, well of course, after UK PM May's hard-line talk on Brexit two weekends ago, the subsequent flash crash during the previous week and now the sentiment that this whole Brexit thing could turn out to be just a complete fudge.
That is the most extreme view of course, but Bloomberg's recent article that implied that May has had a recent change of heart to allow parliament to vote on her Brexit terms is quite misleading, as was Bloomberg's recent ECB tapering headlines (as if we don't have enough to trade on at the moment? Bloomberg is literally moving markets at the moment on pretty inadmissible hearsay type of news).
What May has actually offered to parliament is nothing more than a motion for a debate, NOT an opportunity to vote again on Article 50 let alone terms of a Brexit during the negotiations.
So, I think we can get back to usual business for now, but don't hold your breath. However, fading sterling rallies seems apt or even standing on the sidelines until the 'dust' settles, but again, don't hold your breath - just be sure to wear a 'dust-mask' and be vigilant for we have a number of risk events on the approach. We have the FOMC minutes today and Carney speaking later in the week (and more possible Brexit headlines to watch out for). On BoE spokesmen, we had Cunliffe noting, when he was appearing at the enquiry by the upper House of Lords into the effect of Brexit on financial services, how the markets are finding politics and the uncertainty very hard to process (or really?) and who suggested that indeed the path for the pound is still south from here.
GBP/USD levels
Last week GBP/USD break well below the 1.20 handle to levels that depend on what your EBS was showing while markets pulled bids during the flash crash. Some reported as low as 1.13 handle and 1.11 handle. For now we can look to the 1.21 handle as a key support zone and resistance at 1.2500. 1.2625 above there ahead of the 1.3056 level and late September high. In a break of 1.2000, analysts at Commerzbank have sighted 1.1938 as a key support and after there, they would target the 1.0463 1985 low.
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