GBPUSD Gives Up Gains and Tests Critical Resistance; Can Brexit Talks Provide Support?

GBPUSD
GBPUSD

GBPUSD was off to a bullish start in yesterday’s Asian and European sessions. The currency pair had rallied to a high of 1.2668 after opening at 1.2596. However, GBPUSD gave up all of its gains and finished the day a mere 9 pips above its opening price at 1.2605.

The weakness on the British pound happened after the government announced another round of government stimulus. With this, VAT for companies in the travel sector and tax on home purchases would be reduced. It also did not help that Brexit concerns continue to mount. The British Retail Consortium (BRC) warned that consumers would suffer from higher prices if the EU and UK end up with a no-deal Brexit.

With that said, market participants will be closely monitoring negotiations which are set to happen in Brussels next week.

Technical Analysis

On the 1-hour time frame, it can be seen that GBPUSD has recently made lower highs after a series of higher highs. Consequently, a head and shoulders chart pattern has formed. When you enroll in our free forex trading course, you will learn that this is widely considered as a bearish reversal indicator. GBPUSD is already trading below the neckline support around 1.2600 which could mean that sellers are dominating trading.

However, it is worth pointing out that GBPUSD is also testing support at the rising trendline (when you connect the lows of June 30, July 7, and July 8). Reversal candlesticks around this level could mean that there may still be enough buyers to push GBPUSD back up to its recent highs at 1.2668.

On the other hand, a strong close below the trendline could mean that we could soon see the currency pair fall to its July 8 lows at 1.2507.

GBPUSD, 1-Hour Chart

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