GBP/USD: Three reasons for a bearish outlook

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  • Brexit Party's Farage fails to take extra steps to hep Conservatives.
  • UK jobs report is showing underlying weaknesses in the labor market.
  • GBP/USD's technical rejection at the SMA convergence weighs indicates further falls.

Beware of Brexiteers bearing gifts – a paraphrase on the ancient Latin phrase is adequate for the current political situation. The twists and turns of the election drama are only one of the reasons for the pound's fall – and there may be more in store.

1) Farage giveth, Farage taketh away

Nigel Farage, leader of the Brexit Party, has sent sterling lower after he rejected calls to withdraw candidates from competitive constituencies – making it easier for Conservative candidates to win. He has asked Tories to abandon some races – a request that will likely fall on deaf ears.

Farage's denial comes less than 24 hours after the right-wing outfit abandoned plans to field candidates in all of Great Britain and focusing only on seats where the Tories have lost. That decision raised the chances of Prime Minister Boris Johnson's odds to win an absolute majority and pushed the pound higher.

Moreover, it is unclear if Conservatives' chances are better with or without the participation of the Brexit Party. The opposition has seized on the bond between the parties to claim that Johnson is committed to a hard Brexit.

Investors would like to see a Conservative majority that will ratify the PM's Brexit accord and enact business-friendly policies.

2) Falling employment, a slowdown in wage growth

The UK's jobs report for September's headline was a drop in the Unemployment Rate to 3.8%, better than expected. However, that headline figure concealed a fall of 52,000 in the number of those employed – confirming the Bank of England's fears of an adverse turn in the labor market.

Moreover, Average Earnings slowed down from 3.8% to 3.6% yearly – worse than expected. Brexit and trade wars are taking their toll also on wage growth, and that has also pressured sterling.

3) GBP/USD rejected at the confluence – Technical Analysis

GBP USD technical analysis November 12 2019

Click to enlarge

The four-hour chart is showing that the pound/dollar's attempt to rise was thwarted by the convergence of the 50 and 100 Simple Moving Averages – proving their strength. Moreover, momentum has turned to the downside, and the currency pair failed to recapture the lost uptrend support line.

All in all, bears are growing in strength.

Some support awaits at 1.2815, the daily low. The weekly low of 1.2760 is the next line to watch. It also cushioned the pound's fall in early October. Next, we find 1.2705 and 1.2655, critical levels on the way up.

Resistance awaits sterling at 1.2900, which was the swing high on Monday. It is followed by 1.2950, a peak in late October. The next lines are 1.2980 and 1.3013.

Trump's speech

The next significant event today is a speech by US President Donald Trump. Investors are awaiting news related to trade talks with China. The latest reports have been suggesting that he may be constructive, perhaps lifting markets.

Nevertheless, GBP/USD has been shrugging off headlines related to tariffs – and that is unlikely to change today. Farage has denied that he was urged by Trump to change his elections strategy. The president is reportedly refraining from intervening UK politics – and is unlikely to help the pound.

DISCLOSURE: FXStreet Collaboration.


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