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GBP/USD: Pound Plummets Through Key Support as May Calls Off Vote

GBP/USD: Pound Plummets Through Key Support as May Calls Off Vote

2018-12-10 20:04:00
James Stanley, Currency Strategist
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GBP/USD: Pound Plummets Through Key Support as May Calls Off Vote

GBP/USD Talking Points:

- GBP/USD has put in a bearish move to start the week, pulling up shy of the 1.2500 psychological level as the pair tumbled down to fresh 18-month lows. At the source of the selling was another negative headline around Brexit as Theresa May called off this week’s Parliamentary vote. This adds an element of chaos to an already uncertain situation, and the net response from traders was a 200+ pip sell-off as additional uncertainty was incorporated into GBP prices.

- With the Brexit backdrop as opaque as it’s been since the referendum, it’s become increasingly difficult to muster a bullish prognostication for the British Pound. But – with all currently known facts GBP bears have been yet unable to break through the 1.2500 level, and this is something that should be taken into consideration by those investigating short-side strategies. Risk management can be difficult given the pair’s proximity to recent resistance. In the below article, I look at an area for potential resistance to go along with the potential for short-side breakout strategies on breaks-through the 1.2500 psychological level.

- DailyFX Forecasts on a variety of currencies such as the US Dollar or the Euro are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment Indicator.

Cable Breaks Down as Brexit Dynamics Grow More Opaque

It’s been a rough start to the week for Cable bulls, as another wave of weakness showed up following a weekend of negative headlines. This morning, Prime Minister Theresa May announced that this week’s Parliamentary vote on Brexit will be called off as it appeared to be destined for failure. This adds an element of chaos to an already messy situation, and at this point there are far more questions than answers as to how a final Brexit will look. In response, GBP/USD broke-down to fresh 18-month lows, finding a bit of support just ahead of the 1.2500 psychological level.

GBP/USD Hourly Price Chart

gbpusd gbp/usd hourly price chart

Chart prepared by James Stanley

This morning’s slide after trading opened for the week took out a big level on the GBP/USD chart; and that resides at 1.2671, which is the 23.6% Fibonacci retracement of the ‘Brexit move’ in the pair. This is the same level that helped to contain a sell-off earlier this summer; and that support again played-in last week, helping to bring bargain buyers to the table on both Tuesday and Wednesday.

GBP/USD Eight-Hour Price Chart

gbpusd gbp/usd eight hour price chart

Chart prepared by James Stanley

The big question at this point is how aggressive sellers might remain to be. GBP traders have shown a general distaste for uncertainty around Brexit, and that appears to be the scenario sitting in front of market participants at the moment. With Theresa May unable to gain Parliamentary approval, there are a series of potential scenarios including a new Prime Minister, another referendum on EU membership or perhaps even a No-Deal Brexit.

The sheer unpredictability of the matter is something that should not be discounted by traders, as the impact of Brexit dynamics on GBP price action is undeniable and likely to remain until some element of clarity shows. While it may be simple to ascribe a bearish bias to any of the scenarios sitting in front of markets at the current juncture, there may be a bullish case for GBP/USD in the event of a new pro-Brexit Prime Minister taking over.

For bearish approaches on GBP/USD, that area of prior support could become an attractive instance of resistance if it shows up. That price is at 1.2671, and this could be extended up to the 1.2700 level to create a zone of potential. This, at the very least, could allow for cogent risk management as stops could be lodged above the 1.2800 level, looking for a re-test of 1.2500.

On the underside of price action, the 1.2500 level could present bearish breakout opportunity. This would be an aggressive way of moving forward as the pair has already put in a large move to start the week; but given the respect already shown around that level so far today, the door could remain open for short-side approaches should 1.2500 get taken-out on a recurrent approach.

GBP/USD Weekly Price Chart

gbpusd gbp/usd weekly price chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q4 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a plethora of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

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

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