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GBP/USD: Vulnerable below 1.3100, UK politics back in play ahead of a Big week

  • Manages to hold above 1.3100, but for how long?
  • Letter of no confidence in PM May weighs heavily.
  • A bearish start to a Big week ahead.

The GBP/USD pair reversed sharply from near one-week tops and witnessed a bearish 40-pips gap shortly after the Asian opening bells this Monday, as investors reacted to the weekend’s political headlines from the UK, with all eyes now on the Brexit issue again ahead of the key UK CPI and jobs data due later this week.

GBP/USD downside opening up towards 1.3040?

The spot stalled its sell-off just ahead of 1.31 handle, and now attempts a tepid recovery, as the dust settles over the weekend news piece published by The Times that reported on 40 members of the PM's Conservative party signing a letter of no confidence in Theresa May's leadership.

Moreover, the sentiment around the pound remains weighed by looming Brexit concerns, especially after the EU’s Chief Brexit negotiator, Barnier, noted that the EU needs an answer within two weeks on the Brexit financial settlement. Meanwhile, the latest report by Visa showed that the UK consumer spending dropped at the fastest annual pace seen in over four years, also collaborated to the weakness around the local currency.

It’s worth noting that the sterling was the top performer last week, having gained more than 200-pips on the back of hopes of further BOE rate hikes amid upbeat UK fundamentals after the UK industrial production and goods trade deficit data surprised markets to the upside.  More so, broad-based US dollar weakness on the back of US tax reforms uncertainty also provided extra legs to the GBP/USD rally.

Markets now await a slew of critical macro releases from both the UK and the US due on the card in the week ahead for fresh trading impetus, as the headlines over the UK’s political climate will continue to drive the flow in Cable.

GBP/USD Technical View

Ross J Burland, Analyst at FXStreet, explained: “We had a recent rejection from the October high and the 50% retracement at 1.3338/43 level that is required daily close above to alleviate the bearish bias that was put in place since the same drop. On the flip-side, 1.3180 has been broken on this gap which now opens the 1.3027 level as the recent one month low. Further below lies that 1.2995 level and the 2016-2017 uptrend line that guards the 200-DMA at 1.2854, ahead of 1.2830 as a 38.2% retracement before the 1.2575 as a 50% retracement.” 

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