GBP/USD Forecast: Suffering Brextension Blues Despite Hopes for a Customs Union

FXStreet  |

  • GBP/USD is leaning lower within a limited trading range.
  • Markets and MPs have a break from Brexit, amid speculation about what's next.
  • The technical picture has worsened for the pair.

GBP/USD is trading in the mid-1.3000s, similar to the levels seen on Thursday. Volatility has fallen and so has implied volatility for cable looking forward. The reason is the 6-month delay in Brexit to October 31st.

What's next with Brexit? European Council President Donald Tusk said that the UK might rethink Brexit and perhaps cancel it altogether. Quite a few MPs demanded a second referendum, but PM Theresa May reiterated her refusal to go down that path.

May hinted, however, that everything is possible in talks with the opposition Labour Party. The Conservative Party seems to be warming up to a customs union that the opposition wants. A softer Brexit is a better outcome than May's deal with the EU and a no-deal Brexit. This is good news for the pound.

On the other hand, the ongoing uncertainty weighs on Sterling. Many worry that the UK will be in the same place in October, with a political deadlock. In addition, the constant drag already has taken its toll on the economy. The Bank of England may not raise rates even if Brexit is canceled altogether.

Parliament returns from recess on April 23rd, but top-tier figures are due next week for inflation, jobs and retail sales.

In the meantime, the economic calendar is light. The Conference Board's leading index for the UK is not expected to make any waves, and in the US, consumer sentiment is on the docket, with a high level of confidence expected in the preliminary read for April.

US data released on Thursday was quite upbeat, with producer prices rising more than expected and jobless claims falling to 196,000, the lowest since 1969. Fed officials repeated their patient stance regarding interest rates.

All in all, speculation about Brexit remains central today, but we are unlikely to get any fresh guidance.

GBP/USD Technical Analysis

GBPUSD technical analysis chart April 12 2019

Cable continues trading below the downtrend resistance line that accompanies it since early March. It also slipped below the 50-day Simple Moving Average on the four-hour chart. Upside Momentum disappeared, and the Relative Strength Index also slipped below 50.

All in all, the technical picture is worsening for the pair. Some key levels:

Support awaits at 1.3050 which provided support recently, and 1.3030 was a cushion for the pair earlier this week. 1.2985 was a swing low last week, and 1.2960 was the low point in March.

1.3120 is a double top that held down the pair twice this week. 1.3200 was a high point last week and is also a round number. 1.3270 was a swing high in late March.

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