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GBP Needs Fundamental Support to Justify Current Levels

GBP Needs Fundamental Support to Justify Current Levels

Nick Cawley, Strategist

Talking Points:

  • The time for decision making in the Brexit process is close at hands and both parties need to make concessions before trade talks can begin.
  • Political upheaval in Ireland may cause an unexpected delay in the Brexit process.
  • GBP needs more to keep its current valuation.

Fundamental Forecast for GBP: Neutral

We remain neutral on GBP at this moment but will be watching a range of fundamental drivers over the next week for confirmation that Sterling’s current strength is justified going forward. And on the charts, GBP/USD is trading around a recent six-week high, a level that needs to broken, and closed above, if the latest rally is to continue.

GBP has enjoyed a strong run of late, especially against a weak USD complex, posting gains in nine of the last eleven sessions against the USD. And this is despite the latest news from the Institute of Fiscal Studies, a leading independent research institute, warning of years of squeezed UK living standards and stagnant wage growth. GBP has also brushed aside ongoing concerns that Brexit negotiations are still in-limbo with the European Union remaining steadfast on their demands and timing sequences.

One of these demands concerns the Northern Ireland ‘hard border’ an issue that has provoked the Irish government to dig its heels in and offer no concessions. However the water may become muddier next week after the Irish opposition party said that it may call for a vote of ‘no confidence’ in the incumbent government over a recent political scandal. This may well push Brexit talks further back down the Irish agenda, a delay that may cost the UK dearly.

On the charts, GBP/USD looks set for a push towards 1.34400, the September 6, 2016 high. A break above here would open the pair to the September 20 high around 1.36500. The pair are trading comfortably above the 1000-day ema, a bullish signal, although the stochastic indicator shows the pair in heavily overbought territory. A break below 1.32700 would open a further downside move to current ema support at 1.31450 ahead of trend support, currently at 1.31000.

Chart: GBP/USD Daily Time Frame (August 2016 – November 24, 2017)

GBP Needs Fundamental Support to Justify Current Levels

You can check out our latest Q4 trading forecast for Sterling here.

--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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