GBP/USD Technical Analysis: Brexit Fears Are Still a Pressure Factor

Mahmoud Abdallah

Sterling's gains still face headwinds that negotiations between the two sides of the Brexit may not make significant progress, thanks to poor signals from European Union and UK camps in recent weeks.

A strong start for the pound this week, and the share of the GBP/USD pair pushed it towards the 1.2506 resistance, it’s highest in a month, before settling around the 1.2488 level in the beginning of trading today. The pair gins are driven by the rise in global stock prices, amid a continuous improvement in investor sentiment regarding the global ending of the closure and shifts in the market situation before the crucial Brexit trade negotiations this week. Sterling's gains still face headwinds that negotiations between the two sides of the Brexit may not make significant progress, thanks to poor signals from European Union and UK camps in recent weeks.

Markets still envision a rate close to 0% to achieve tangible progress between the European Union and the UK this week, and if this week reveals even the slightest hint that the two sides may strike a deal in the future, there may be some strong recovery opportunities for the British pound against the rest of other main currencies.

The ongoing geopolitical tensions will continue to affect market sentiment, especially regarding the recent new Hong Kong security law, along with optimism about the global recovery as global economies reopen in coexistence with the Coronavirus. Besides, US President Trump has abstained from announcing new sanctions against China. Therefore, the markets remained optimistic that the "Phase 1" commercial deal between the two largest economies in the world may not be abandoned.

Despite the recent performance, the pound is unlikely to continue into the coming days, as we enter another important week on the Brexit front and expect negative headlines related to the state of trade negotiations. Brexit has become closely related to the British pound in recent weeks, and this may explain the currency's recent poor performance. Over the past month, the cable fell against all other currencies except for the Japanese yen. This indicates that markets are increasingly concerned about the result of a "no deal" to trade negotiations, given that both sides appear to be diverging on a large number of key issues.

On the American side. US factory activity slowed for the third straight month in May as it continued to endure economic damage from the Coronavirus. Accordingly, the Institute of Supply Management, a consortium of purchasing managers, said on Monday that its ISM manufacturing index came at a reading of 43.1 last month after recording a reading of 41.5 in April. According to the index data, any reading below the 50 level indicates that American manufacturers are in decline. New orders, production, employment and new export orders decreased in May, but at a slower pace than in April. The epidemic, closures, and travel restrictions to combat it have caused economic activity to stop. The gross domestic product of the United States decreased at an annual rate of - 5% from January to March and is expected to decrease by an average of - 40% from April to June.

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According to the technical analysis: The GBP/USD pair is still in an upward correction range as long as investors are willing to take risk. At the same time, gains may be exposed to a new setback from the future of Brexit. Therefore, 1.2520 and 1.2600 resistance levels may be selling targets, especially with technical indicators reaching overbought areas. The return of the bear's control of the performance again will depend on the return to the 1.2320 support perimeter. There are no significant US economic releases today and the pair will react to UK data; money supply, mortgage approvals and net lending to individuals.

GBP/USD

About the Author
Mahmoud Abdallah
Mahmoud has been working fulltime in the Foreign Exchange markets for 12 years. Offers his analysis, articles and recommendations at the most renewed Arabic websites specialized in the global financial markets, and his experience gained a lot of interest among Arab traders. Works on providing technical analysis, market news, free signals and more with follow up for at least 12 hours a day, and aims to simplify forex trading and the concept of trading for his audience.
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