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GBPUSD Forecast: Path of Least Resistance Is Upwards

GBPUSD Forecast: Path of Least Resistance Is Upwards

2018-12-12 10:30:00
Martin Essex, MSTA, Analyst
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GBP price, news and analysis:

  • GBPUSD fell initially on news of a leadership challenge to UK Prime Minister Theresa May but then rallied strongly.
  • Whether she wins or loses, those gains could be extended as speculation grows that Brexit may have to be delayed or even abandoned.

UK PM May’s leadership challenged

Opponents of UK Prime Minister Theresa May within her ruling Conservative Party have triggered a challenge to her leadership – initially weakening the British Pound. However, it then rallied strongly as speculation grew that the vote could delay the UK leaving the EU and potentially even halt Brexit entirely.

The moves in GBP suggest that it could yet climb further whether she wins or loses the ballot, which is expected to be held between 1800 and 2000 GMT Wednesday, with the result announced soon afterwards.

GBPUSD Price Chart, Five- Minute Timeframe (December 12, 2018)

Latest GBPUSD price chart.

Chart by IG (You can click on it for a larger image)

For now, May looks likely to survive the vote, with one betting company quoting odds of 1/2 that she will remain in power. She has largely retained the support of her Cabinet, arguably GBP is already pricing in a worst-case Brexit and her opponents look unlikely to win the votes of the 158 Conservative Members of Parliament needed for the challenge to succeed. She would then be safe for a year as Conservative leader.

A victory by May would probably be seen in the markets as positive, given that it would neutralize the threat of a hard-line Brexiteer taking over from her – thereby reducing the likelihood of a GBP-negative no-deal Brexit. If she loses, speculation would increase that Brexit would have to be delayed or abandoned – also potentially positive for GBP.

GBPUSD Price

In either case, therefore, GBPUSD could move closer to 1.27, although gains could be limited by the increased possibility of a General Election. The 1.26 level is therefore more plausible.

To the downside, there is a band of support around 1.2370 from the lows reached in late March and early April 2017 that should limit any losses, with GBPUSD now close to oversold levels and short-covering a distinct possibility.

More to read:

Brexit Timeline – The Path Ahead

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

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

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