- Growing fears of a no-deal Brexit prompted some fresh selling around GBP/USD on Monday.
- A goodish pickup in the USD demand further contributed to the slide below the 1.3200 mark.
The GBP/USD pair failed to capitalize on Friday’s goodish rebound of around 100 pips, instead met with some fresh supply on the first day of a new trading week. The momentum dragged the pair back below the 1.3200 mark during the early European session and was sponsored by growing fears of a no-deal Brexit. The British Prime Minister Boris Johnson appeared before the media late Sunday and set a deadline of October 15 to strike a free-trade deal with the European Union. Johnson also threatened that Britain could walk away from the talks within weeks and said that a no-deal exit would be a good outcome for the UK.
Separately, the UK Brexit negotiator David Frost said on Sunday Britain was not scared of a no-deal exit at the end of the year. The EU’s chief negotiator, Michel Barnier hit out at his British counterpart and blamed that the British want the best of both worlds. Mr Barnier further added that he would not agree to a free-trade agreement without a pact that secures access to Britain’s fishing grounds for European vessels. The not so comforting Brexit-related headlines come just ahead of a crucial round of post-Brexit trade talks starting on Tuesday, which, in turn, took its toll on the British pound.
On the other hand, the US dollar traded higher through the first half of the trading action on Monday and further contributed to the pair’s downfall. The USD uptick, however, lacked any obvious fundamental catalyst and is likely to remain capped amid doubts about the sustainability of the US economic recovery. There isn’t any major market-moving economic data due for release from the UK and the US markets are closed in observance of Labor Day. Hence, the incoming Brexit headlines might continue to act as an exclusive driver of the sentiment surrounding the sterling and produce some meaningful trading opportunities.
Short-term Technical Outlook
From a technical perspective, some follow-through selling below Friday’s swing low, around the 1.3175 region, will be seen as a fresh trigger for bearish traders and accelerate the slide towards mid-1.3100s. The downward trajectory could further get extended to the 1.3100 mark before bears eventually drag the pair towards the next major support near the 1.3050-40 horizontal zone.
On the flip side, the 1.3255-65 region now seems to have emerged as immediate strong resistance. That said, a sustained move beyond might trigger a short-covering move and push the pair back towards the 1.3300 round-figure mark. A subsequent move up might negate any near-term bearish bias and assist the pair to aim back to the recent daily closing highs resistance near the 1.3385 region.
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