- GBP/USD has been retreating from the highs ahead of further EU-UK talks.
- Uncertainty about the government’s intention to obey the new law weighs.
- Monday’s four-hour chart suggests the pair may resume its rally.
“The Incredible Hulk” is the cartoon creature that UK prime minister Boris Johnson compared himself to. The green monster unshackles his chains – and Johnson would like to free the UK from the bloc’s restraints. The colorful comparison may have gone well with Conservative voters but has angered many in Brussels. Johnson meets European Commission President Jean-Claude Juncker for a meeting today where they will try to find solutions to the Irish backstop.
Ahead of the encounter, EU officials have repeated their message that they are still awaiting concrete, detailed – and written – proposals from the Brits. One option that has been floated is limiting the backstop to Northern Ireland while the rest of the UK will be out of the customs union. That option would anger the Northern Irish Democratic Unionist Party (DUP) which prioritizes the union of the UK. However, Johnson has already lost his majority in parliament – and is, therefore, less dependent on the party.
The clock continues ticking down to Brexit – which is due for October 31 – despite the law that prevents a leaving the EU without a deal without parliament’s consent. UK Foreign Minister Dominic Raab said the government would obey the law – but hinted that the government may find ways around it. His willingness to ignore the law is weighing on the pound.
While the focus remains on UK-EU negotiations, markets are also eyeing the UK Supreme Court, which will rule on Tuesday on the suspension of the House of Commons. A court in Scotland previously ruled that proroguing of parliament is unlawful while courts in London and Belfast ruled it is legitimate. If parliament reconvenes, the drama could return to Westminister.
Apart from Brexit, markets are following developments in the Middle East. A deadly drone attack knocked down some 50% of Saudi oil production and 5% of global output. The sharp rise in oil prices that followed and potential US action against Iran – suspected for orchestrating the assault – weighs on markets and strengthens the safe-haven US dollar.
The highlight of the week – the Federal Reserve’s rate decision – is around the corner and causing tension. The Fed is set to cut rates and signal its moves for the remainder of the year.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) has dropped below 70 – exiting overbought conditions – and opening the door for more gains. GBP/USD continues enjoying upside momentum and trades above the 50, 100, and 200 Simple Moving Averages.
All in all, bulls are in control.
Resistance awaits at 1.2505, which was the high point on Friday. It is followed by 1.2560, which capped the pair in mid-July. Next, we find 1.2580, which held the currency pair down earlier that month.
Support awaits at 1.2420, which was a support line in July. It is followed by 1.2380, which was another support line in July and also capped GBP/USD last week. Next, 1.2310 held the pair down in August and now works as support.
Equities Contributor: FXStreet
Source: Equities News