GBP/USD: Three Reasons Behind the Fresh Rally

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  • GBP/USD has been rising amid fresh hopes for reaching a Brexit deal.
  • Headlines from the talks and also UK figures are set to move the pound.
  • Tuesday's four-hour chart is pointing to potentially overbought conditions.

Is the pound's well-deserved breather about to end? Fresh optimism regarding Brexit talks has been boosting GBP/USD after a bout of pessimism allowed profit-taking on Monday. And now, a surge above 1.27 is in sight.

There are three upbeat media reports that are boosting the pound.

Three sterling positives

1) Optimism in the Telegraph: The widely-read Telegraph – where Prime Minister Boris Johnson used to write a column – has reported that compromises from both sides may lead to a deal. The paper also says that an emergency summit may be held toward the end fo October – in addition to this week's gathering of leaders.

2) RTE reports about fresh proposals: The Irish broadcaster has reported that the UK is set to table fresh proposals to break the Brexit deadlock. The new ideas follow a meeting between Johnson and Arlene Foster, leader of the Democratic Unionist Party (DUP). The small Northern Irish party wants to safeguard the union between the province and the rest of the UK – and is seen as critical to mustering support in parliament.

3) Barnier is positive: Chief EU Negotiator Michel Barnier – usually downbeat – has said that a Brexit deal is still possible this week. The French statesman has added that the ideas expressed in the negotiations must turn into legal text.

All in all, these reports are sending GBP/USD higher. Cable dropped on Monday as the wind was blowing to the other direction – pessimism about reaching a deal this week. Barnier said that fresh "political impulse" is needed – and perhaps it has come now.

Beyond Brexit

Brexit headlines overshadow other events such as the Queen's Speech, a potential downgrade of global growth forecasts that are due later today, and reports related to US-Sino talks. However, the UK jobs report may move the pound. Economists expect wage growth to have decelerated in August after hitting cycle highs in September.

The preview notes that the figures need to move in the direction of the mood on Brexit. As the atmosphere is now positive, better-than-expected wage growth has greater chances of influencing GBP/USD's price than disappointing data.

GBP/USD Technical Analysis

GBPUSD technical analysis October 15 2019

The Relative Strength Index on the four-hour chart is flirting with 70 – indicating overbought conditions. However, it is essential to note that the RSI spent an extended period of time above this level on Friday before correcting lower. Brexit headlines seem to be bending technicals. Other indicators are positive, with robust upside momentum. Moreover, the 50 Simple Moving Average is breaking above the 200 SMA – a bullish sign.

Resistance awaits at the three-month high of 1.2706 reached on Frida. It is followed by 1.2740, which capped GBP/USD in June. Next, critical resistance awaits at 1.2780.

Below the battle line of 1.2640, 1.2580 may provide some support after it capped cable in mid-September. It is followed by 1.2510, which was a low point on Monday. Next, we find 1.2470, a stepping stone on the way up, and 1.2415, which separated ranges several times in recent weeks.


Equities Contributor: FXStreet

Source: Equities News

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