GBPUSD Weighed Down by the Prospect of a No-Deal Brexit

GBPUSD steadily traded lower after it opened at 1.3327 yesterday. Market participants have grown worrisome of Prime Minister Johnson’s Brexit plans. Consequently, this led to a 200-pip loss in yesterday’s trading.

Boris Johnson Keen on Finalizing Brexit in 2020

UK Prime Minister Boris Johnson submitted a bill to prevent Parliament from voting to extend the transition period from December 31, 2020. On top of that, he also does not want want Parliament to oversee negotiations or have a hand in worker’s rights. This implies that the UK may end up with a no-deal Brexit. If this turns out to be the case, the UK banking sector could be crippled and may even lead to it moving to Ireland or Netherlands.

Mixed Labor Data from the UK

It also did not help that employment figures from the UK came in mixed. Data for November showed that there were 28,800 people who claimed for unemployment benefits for the month. This was higher than the 21,200 forecast. Average earnings also fell short of forecasts at 3.2% versus the 3.4% consensus. Only the unemployment rate came in better than expected at 3.8%, lower than the 3.9% estimate.

Inflation Data Scheduled Today

For today, the CPI report for November is due. It is expected that consumer prices are 1.4% higher from a year ago. Meanwhile, the core CPI report for the month is eyed at 1.7%. Better-than-expected data could be bullish for GBPUSD.

Read our Best Trading Ideas for 2020.

GBPUSD Outlook

On the daily time frame, GBPUSD is currently testing resistance at the rising trend line (from connecting the higher lows of September 3, October 8, and November 27). When you draw the Fibonacci retracement tool from the low of November 27 to the December 12 high, you will see that the trend line coincides with the 61.8% Fib level. If support at the 1.3100 handle holds, we could see GBPUSD trade higher and test its 19-month highs above 1.3500.

On the other hand, a bearish close below the trend line and 61.8% Fib level could mean that GBPUSD may soon trade lower. The area around 1.2675 could provide support. For one, the price coincides with the 100 SMA. Second, it also seems to align with the rising trend line from connecting the lows of September 3 and October 10.

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