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GBP: Sterling Building A Base on Brexit Progress

GBP: Sterling Building A Base on Brexit Progress

Nick Cawley, Strategist

Sterling (GBP) Talking Points:

  • Positive sentiment sees GBPUSD regain 1.2900
  • With talks ongoing, wire headlines will continue to determine short-term moves.

The DailyFX Q3 GBP Forecast is available to download.

Brexit Sentiment Takes a Positive Turn

The news late Wednesday that Germany was ready to accept a less detailed Brexit agreement on future EU-UK trade sent Sterling sharply higher and near 1.3000 before the inevitable semi-denial of the agreement trimmed gains. As has been the case throughout the Brexit negotiations, language and nuance need to be monitored closely for clues of further decisions ahead. Germany’s latest intervention in itself will not change the EU’s negotiating stance but shows that the largest country in the EU wants talks to progress and signals that a hard-Brexit is their least desirable outcome.This stance will give talks a push forward and counteract the negative sentiment that has weighed on the British Pound for the last few months.

Talks remain ongoing between the EU and the UK and further roadblocks and negative commentary can be expected all the way through to the end of the negotiating process. This still leaves the UK currency vulnerable to a pull-back, but with so much negative sentiment built into GBP over the last few months, these pull-backs will become increasingly shallow and on balance Sterling will move slowly higher.

Sterling Dips Look Attractive After Brexit Breakthrough

GBPUSD remains in thrall to the strong dollar and upside will be constrained as the US continues to normalize monetary policy by raising interest rates. The daily GBPUSD chart below shows resistance from the 50-day moving average at 1.29730 ahead of the recent high (August 30) at 1.3044. If GBPUSD can build a base above the latter level, then the July 9 high at 1.3364 becomes the next target.

IG Client Sentiment shows traders remain net-long GBPUSD – see how daily and weekly positional changes steer trader sentiment.

GBPUSD Daily Price Chart (January – September 6, 2018)

GBP: Sterling Building A Base on Brexit Progress

A cleaner way of trading Brexit negotiations is by using EURGBP. Here Fibonacci resistance at 0.90723 is capping the upside while the 20-day (0.89960) and 50-day (0.894200 moving averages are acting as downside brakes ahead of Fibonacci retracement at 0.89272.

EURGBP Daily Price Chart (May 2017 – September 6, 2018)

GBP: Sterling Building A Base on Brexit Progress

Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

--- 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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