GBP/USD Relief Rally Short-Lived
Last week, GBP/USD rose after the announcement of UK’s new Prime Minister, Boris Johnson. Perhaps this can be attributed to a ‘buy the rumor, sell the news’ type of analogy as Johnson’s election has largely increased fears of a no-deal Brexit.
The relief rally was short-lived and the markets are once again showing a lack of faith that the UK PM will be able to push through a deal. GBP/USD fell below the early January spike low today, easing towards the 1.2300 handle.
The US dollar has been strong as of late, which has put additional pressure on GBP/USD. However, today’s move is more a show of a weaker Sterling than anything else. Most of the majors are trading relatively unchanged shortly after the European open while GBP/USD is down nearly half a percent.
UK data released today was mixed with a moderate pick up in the housing market while consumer lending fell sharply. The Bank of England reported a five-year low in lending while mortgage approvals remained unchanged from the prior month.
Today’s decline below support could be setting up for a move towards 1.2155 which is a respected level on a weekly chart.
On the smaller time frames, upside resistance is now at the broken support level found at 1.2370. To the downside, the 1.2300 handle may offer some support. Beyond that, the 161.8% extension of the rally that took place in mid-July falls at 1.2273.
I think it is important to keep an eye on the US dollar index (DXY) here. It is approaching some major resistance that has kept on lower on prior occasions. This resistance stems from the 61.8% Fibonacci retracement measured from 2017 highs to 2018 lows.
The British Pound remains the weakest major currency for the month and declined to a fresh 28-month low against the dollar today.
The next area of downside interest falls at 1.2300 followed by 1.2273.
The early January spike low of 1.2370 offers resistance
There are several risk events in the week ahead, including central bank meetings from the Fed and BoE.
This article was originally posted on FX Empire