GBP/USD may remain under pressure as 3-month Brexit extension does little to erase uncertainty

  • GBP/USD fell 0.7 percent yesterday even though the British Parliament delayed Brexit deadline by three months. 
  • The odds of a breakthrough deal in the next three-months are quite low. Sterling, therefore, could remain under pressure. The downside, however, looks limited as MPs have already rejected a no-deal Brexit. 
  • That said, a descending triangle breakout on 4H chart, if confirmed, would open up upside toward 1.3380. 

GBP/USD declined 0.7 percent on Thursday and may trade flat-to-negative today on looming Brexit uncertainty. 

On Tuesday, members of Parliament rejected Prime Minister Theresa May's withdrawal deal for the second time but voted 412-202 to ask the EU for a delay of the Brexit deadline to June 30 - which had been previously set for March 29. 

The three-month extension is unlikely to impress GBP bulls as it leaves the UK right where it started. Also, if they can't reach a deal in more than 2 years, there's very little chance that an agreement will be made by June and that could keep GBP bulls at bay, according to BK Asset Management's Kathy Lien. 

Further, the probability of Britons heading for the second referendum is low as a bid to delay Brexit long enough to allow another referendum failed 330 votes to 85 yesterday. 

What's more, the delay could be a long one if Parliament rejects May's deal for the third time next week. The EU too could agree to a long extension - European Council President Donald Tusk has said he will appeal to EU leaders "to be open to a long extension" of the Brexit deadline. 

Put simply, the three-month extension has done little to erase Brexit uncertainty. So, GBP/USD may remain under pressure will heading into the weekend. 

That said, the downside looks limited as well, as the worst scenario - a no-deal Brexit - has been rejected by MPs. 

The technical outlook for the day would turn bullish if the pair beats the descending triangle resistance, currently at 1.3254. That would open the doors to re-test of recent highs near 1.3380. 

Technical Levels

    1. R3 1.3453
    2. R2 1.3397
    3. R1 1.3319
  1. PP 1.3263
    1. S1 1.3185
    2. S2 1.3129
    3. S3 1.3051


 

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