GBP/USD remains familiar with 1.34 as impending rate hike, Brexit developments freeze traders

  • Sterling is holding steady as the new week opens to a US rate hike and a typically muddy Brexit.
  • Soft data for Monday belies an FOMC rate hike that could throw the pair downward quickly.

The GBP/USD is still trading near 1.3400 after failing to generate bullish momentum last week, and has been capped by the major handle as markets await further Brexit developments this week.

With an FOMC rate hike expected this coming week, the interest rate differential between the GBP and the USD is expected to diverge further, which could hamper the Sterling out of the gate, sending the Pound back into recent lows. 

After the latest Irish border solution being rejected, traders are looking for further headlines this week as the UK continues to grapple with finding common middle ground between hard-line Brexiteers and the EU leadership in Brussels, with Prime Minister Theresa May caught in the middle and st4ruggling to find solutions that appease both sides.

Monday brings a slew of data for the UK, all dropping at 08:30 GMT, but eyes will be focused on the Manufacturing Industrial Production figures, with the year-on-year headline expected to come in steady with the previous reading, at 2.9%. The US Monday session will be smooth sailing on the economic calendar, but traders will likely be processing the G7 summit blowout that saw President Donald Trump abandon the summit a day early and withdraw the US' support of the G7 communique after a Tweet tirade from the POTUS aboard Air Force One en route to Singapore for the upcoming Trump-Kim summit.

GBP/USD levels to watch

As noted by FXStreet's Mario Blascak, "the daily chart sees GBP/USD correcting higher from 1.3205 low with technical oscillators pointing in different directions. While the Relative Strength Index leaped off the oversold territory and turned again with Sterling falling the levels from the beginning of last week, Slow Stochastics is still in the upward trajectory. The GDP/USD was unable to cross above the 38.32% Fibonacci retracement level of the previous uptrend from 1.2020 level all the way up to the 22-months high of 1.4377. The GBP/USD is currently trapped in ranges formed by 38.2% and 50% Fibonacci retracement of the above-mentioned move at 1.3200 and 1.3450. The death star crossover of the 50-day and 100-day moving average on the daily chart indicates further downside potential for GBP/USD first attempting to break 1.3300 before attacking 1.3200 represented by 50% Fibonacci retracement of the uptrend from 1.2020 to 1.4377. On the upside the GBP/USD needs to break back above 1.3380 to target 1.3450, last week’s high."

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