GBP/USD: Boris Breakout Above 1.30?

FXStreet  |

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  • GBP/USD has been struggling to extend its gains amid political uncertainty.
  • Tension is mounting toward the first televised debate between the leading candidates.
  • Tuesday's four-hour chart is pointing to a resumption of the rally.

When the leader of the center-right party turns leftward, the currency drops—and that is adding to confusion ahead of the all-important televised debate between the leaders of Britain's two main parties.

GBP/USD has been retreating from the highs after Prime Minister Boris Johnson abandoned his plans to cut corporate taxes and pledge money to the National Health Service (NHS).

Investors prefer the usually market-friendly policies of Johnson's Conservatives to Corbyn's plans for nationalizing several industries, including broadband. However, that announcement and the PM's pledge to end the post-Brexit transition period at the end of 2020 have worried markets.

Labour's position—renegotiating a softer Brexit and bringing it to a referendum—is far from reassuring and only adds to the uncertainty. Both politicians addressed the Confederation of British Industry's conference and failed to cheer markets.

Johnson-Corbyn televised debate

The PM is venturing into Labour's preferred tax and spend policies ahead of the faceoff with the opposition's hard-left leader Jeremy Corbyn.

They will now meet in ITV's studios with Brexit, nationalization, and the NHS all on the cards, especially after health chiefs said that poor staffing is endangering patients. A focus on health—more comfortable for Corbyn—than on Brexit, may improve the leftist leader's chances. And that may weigh on the pound, despite Johnson's ditching of the planned corporate tax cut.

Opinion polls have shown a growing lead for the Conservatives over Labour, but mostly thanks to Nigel Farage's Brexit Party's free-fall. A victory for Johnson in the debate may help him consolidate his lead, while a comeback for Corbyn, on NHS issues or other topics, may raise the odds of a hung Parliament.

Trump, the Fed and trade

Elsewhere, President Trump surprisingly summoned Jerome Powell, Chairman of the Federal Reserve, to a special meeting. Trump urged Powell to cut rates, but the Fed is unlikely to budge.

The calls may precede a breakdown of trade talks. China is reportedly skeptical about the odds of reaching a broad trade deal with the US. The world's largest economies have been clashing on the path of removing tariffs, with new duties scheduled for December 15 still set to go ahead. The US Dollar has been paring some of its losses on Monday.

Overall, pound/dollar is set to move mostly on British political developments and will likely ignore American ones, unless they are extraordinary.

GBP/USD Technical Analysis

Click to enlarge

Cable has been rising within an uptrend, setting higher highs and higher lows. The recent slide has allowed sterling to exit overbought conditions, with the Relative Strength Index on the four-hour chart dropping below 70. That is a bullish sign. The pound remains above the 50, 100, and 200 Simple Moving Averages, and momentum remains to the upside.

All in all, bulls are in control.

GBP/USD has some support around 1.2940, which is the daily low. It is followed by 1.2900, the high point last week, and by 1.2820, which provided support back then. The November low of 1.2760 is next.

The pound faces resistance at 1.2985, November's high set on Monday. It is followed by 1.3013 – he six six-month high set in October. Next, we find 1.3045, 1.3080, and 1.3175.

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Equities Contributor: FXStreet

Source: Equities News

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