GBP/USD stages late recovery, looks to close the day above 1.31

  • UK political woes weigh on GBP on Monday.
  • GBP/USD rises above 1.31 amid a technical correction in the NA session.
  • Investors keep an eye on Brexit negotiations and wait for tomorrow's data.

The GBP/USD pair started the week under a heavy selling pressure following the weekend's headlines claiming as many as 40 MP’s have agreed to sign a letter of 'no confidence' in PM May's leadership. After plummeting to a fresh weekly low at 1.3060 during the day, the pair retraced a portion of its losses and was last seen trading at 1.3120, where it was still down 70 pips, or 0.5%, on the day.

UK politics and Brexit remain on center stage

Commenting on today's GBP sell-off, "once again GBP is carrying the mantle of the worse performing G10 currency on a one day view and once again politics is behind the pressure on the pound," Rabobank analysts explained. Profit taking ahead of tomorrow's data dump from the UK and some relatively optimistic comments from the British Brexit Minister David Davis seem to have helped the pound gain some traction during the second half of the day. Davis said that the EU & the UK Brexit teams were in continual contact and they were able to make some good progress on citizens' rights. The EUR/GBP pair also erased around 30 pips from its daily highs.

On Tuesday, the economic docket in the UK will feature the CPI and the PPI data. Markets expect the annual consumer inflation to rise to 3.1% from 3% in October. Although the BoE made it clear that they were looking to hike rates two more times in 2018, a higher-than-expected increase in the CPI could help the GBP gather strength in the near-term.

Technical outlook

Valeria Bednarik, Chief Analyst at FXStreet, writes, "the pair bottomed at 1.3061, and recoveries have been rejected on approaches to the 38.2% retracement of the latest daily decline, at 1.3140. In the 4 hours chart, the 20 SMA holds flat a few pips below the mentioned Fibonacci level, reinforcing the resistance area. Technical indicators in the mentioned chart have managed to correct higher, but turned flat within neutral territory,  somehow suggesting that the risk remains towards the downside, as buying interest is limited."

According to the analyst, supports for the pair could be seen at 1.3165, 1.3130 and 1.3090 while resistances align at 1.3220, 1.3260 and 1.3300.

 

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