GBP/USD: Stretching higher above 38.2% Fibo, bulls eye 2018-2019 resistance line at 1.2829
- GBP/USD has reached a fresh high of 1.2782 with a firm base on the 1.27 handle in the lead into the New Year following Fed's Powell's dovish rhetoric on Friday which sent the dollar lower.
- DXY extends its decline from a touch below the 97 handle last week to test below the 96 handle today, enabling cable to drift higher from the 38.2% Fibo retracement of late Sep decline. However, Brexit risk is on the cards for 15th Jan Brexit vote, and noise leading up to the event will likely create volatility.
GBP/USD has been given a leg up despite the pending risks associated with whether the meaningful vote, held in The Commons later this month whereby PM May seeks to have the Withdrawl agreement agreed upon by MPs of which the market expect it will be rejected and sterling would be under pressure should a no deal Brexit be the most likely outcome when Britain crashes out of the EU in March.
On Sunday, May said Britain would be in "uncharted territory" if her Brexit deal is rejected and the bookmaker's odds suggest "uncharted territory" looks likely - (William Hill quotes 2/1 for the withdrawal agreement to be approved by the UK parliament before March 30 (2/1 = odds against)). Reports are floating around today that ahead of Wednesday's slated resumption of the debate on the withdrawal agreement, 209 of Britain's 650 MPs have signed a letter to the PM urging her to rule out a no-deal Brexit.
Dollar sinks on Powell
Meanwhile, the pound has taken its cues from the market's appetite for the US dollar, or lack thereof, following Fed's Powell's dovish comments on Friday. GBP/USD jumped from 1.2617 to 1.2744 on Powell's message - (Powell is due to speak again this week (Thursday)). Elsewhere, which was a plus for the dollar until Powell spoke, the number of US jobs were rising way above expectations by 312K in December, up from 179K expected by the market with wages up 3.2% over the year. The unemployment rate in the US ticked up to 3.9% in December with the participation rate also rising.
Back to Brexit and various scenarios
However, the key focus stays with Brexit and whether the UK will crash out of the EU with no deal. Such an outcome would be negative for the pound. However, whether MPs voting against her deal will lead to a leadership challenge and ultimately a new referendum is also a risk. Such an outcome would cause huge uncertainty, weigh on the pound initially until sentiment switches to the public voting to stay in the EU. The UK polling firm YouGov said 46% of Britons would vote “remain” and 39% would vote “leave” should the Brexit referendum happen again now. While the pound would benefit if a no-deal Brexit could be ruled out, getting to that point would be tricky. The government previously said that if the withdrawal agreement is rejected, Britain will leave the EU without a deal on March 29.
The pound is in positive territory, finding a base on the 38.2% Fibo of the Sep' decline and well above the flattening 21-D SMA as price takes on the 50-D SMA. We have a series of three bullish daily candlesticks and both MACD and RSI extending its positive trajectory.
"GBP/USD last week sold off to and recovered from a 5-month support line, today located at 1.2440. It is probable that the slide to 1.2444 represented the end of the down move. The market would need to overcome the 2018-2019 resistance line at 1.2829 to confirm. Below 1.2444 targets the 78.6% retracement at 1.2109,"
analysts at Commerzbank explained.