- GBP/USD has been tumbling down after the government moves to suspend parliament.
- The chances of a hard Brexit rise unless the opposition passes legislation.
- Wednesday’s four-hour chart implies further falls are possible.
UK prime minister Boris Johnson has sent sterling stumbling as he moves to suspend parliament. The UK government will ask the Queen to prorogue parliament from September 9th to October 14th – when Her Majesty will deliver a new speech to kick off a new session.
In layman’s terms, it means blocking pro-Remain MPs from passing legislation that would prevent the government from leaving the EU without a deal. The move has been under consideration, but markets brushed it off – until it turned to reality.
The pound reacted with a sharp decline, crashing from a daily high of 1.2290 to as low as 1.2154 before bouncing – yet remaining below 1.2200. Sterling also slumped against other currencies.
The next Brexit moves
Johnson’s move comes one day after opposition parties united around passing laws that would prevent a hard exit rather than a Vote of No Confidence that Labour initially wanted.
The PM may also be sending a message to the EU – that he is serious about leaving without an accord and ready to do everything – including triggering a constitutional crisis.
MPs objecting a no-deal Brexit have reacted angrily – and now have a limited window to undo the PM’s move. They may seek help from the courts or change their minds and try to topple the government. However, finding an agreed candidate for PM would pose a challenge.
And even if the government falls, Johnson may call an election for November – after the October 31st Brexit deadline – forcing a hard exit.
All in all, Brexit uncertainty has hit a new high.
The dramatic political developments in London brushed aside concerns about the US-China trade spat. Bloomberg reported that China’s mistrust of Trump has deepened – diminishing chances for an accord. Tweets by the president may press further on GBP/USD once the dust settles from the storm.
GBP/USD Technical Analysis
GBP/USD has tumbled below uptrend support that accompanied it since late last week, and also fell below the 50 Simple Moving Average on the four-hour chart. It found support at the 200 SMA which hits the price at 1.2150.
The Relative Strength Index (RSI) is still above 30 – outside oversold conditions – implying more falls are possible.
Below 1.2150, the next cushion is at 1.2110, which provided support last week. Next, we find last week’s trough at 1.2065, followed by early August’s support line of 1.2040, and the 2019 low of 1.2015. Even lower, 1.2000 and 1.1985 await GBP/USD.
Looking up, 1.2275 serves as resistance after halting GBP/USD on Friday. The next cap is 1.2310 was the high point on Tuesday. 1.2380 and 1.2420 provided support before the crash.
Equities Contributor: FXStreet
Source: Equities News