GBP Outlook: Sterling in a Holding Pattern as Brexit Talks Intensify

Sterling (GBP) and Brexit Talking Points:

• Brexit holds sway – detail is now all important for Sterling.
• Volatile market conditions ahead.

The DailyFX Q4GBP Forecast is available to download.

GBPUSD on Hold but a Brexit Break Nears

GBPUSD has settled just under 1.3200 and is expected to stay there until the outcome of this week’s Brexit talks in Brussels are known. The recent strength in the British Pound is predicated on a deal, of some sorts, being reached and announced next week at the EU Summit and until then Sterling will likely drift either side of 1.3200.

The detail of the deal now becomes even more crucial if UK PM Theresa May is to get the proposal through Parliament. May’s preferred deal, Chequers, is highly unlikely to pass both the EU and the House, while a Canada+++ style deal – proposed by the EU - may have a better chance but this means PM May publicly changing course.

And just to add fuel to the fire, according to recent reports, 10 DUP MPs have threatened to vote down the UK Budget at the end of October if any of their ‘red lines’ are broken.

The technical outlook for GBPUSD remains positive, despite the ongoing strength of the US dollar. The pair trade above the 20- and 50-day moving averages and are close to the September swing high of 1.32986 and the 38.2% Fibonacci retracement level at 1.33170. These levels should hold in the short-term but would become vulnerable to any good news out of Brussels. For GBPUSD to press back towards 1.37220 – the 61.8% Fibonacci retracement level – Sterling will need good news from Parliament.

IG Client Sentiment shows that retail traders are 59.5% net-long GBPUSD, a typically contrarian bearish view. However, recent daily and weekly positional shifts suggest that GBPUSD will likely move higher.

GBPUSD Daily Price Chart (April – October 11, 2018)

Traders may also 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