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GBP/USD rebounds but continues to be unable to break 1.2800

  • Cable trims losses as the pound gains momentum, but positive momentum eases at 1.2780. 
  • US dollar looks weak on Fed rate expectation and the pound vulnerable on Brexit and UK politics. 

The GBP/USD climbed from 1.2750 to 1.2780 at the time of the London fix. It found resistance, and it was trading around 1.2770/75, posting modest losses for the day and still holding near the critical technical area of 1.2800. 

The move to the upside took place amid a stronger pound across the board. It trimmed losses also against the euro. Overall, price actions remain limited in the currency market with the US dollar holding to most of yesterday’s losses. The greenback was hit by market’s perception of a “dovish” Fed. Expectations for rate hikes during 2019 continue to grind lower. 

The pound remains limited and looking vulnerable ahead of the Brexit deal vote at the Parliament.  “As Parliament looks set to vote down Theresa May’s Brexit deal, time is fast running out to find and implement an option that lawmakers can rally around. One way or another, it’s looking more likely that the UK will be left with no choice but to apply for an extension to the Article 50 period,” wrote ING analysts. 

Levels to watch

The GBP/USD pair continues to consolidate near December and January highs but in order to clear the way to more gains it needs to break and hold on top of 1.2800. A rally without some Brexit clarification seems unsustainable and vulnerable to reversals. 

The failure to break above 1.2800 is starting to affect technical indicators, that are slowly turning to the downside. A firm break under 1.2740 would point to more losses in the short-term with a potential target at 1.2720. Below that level attention would turn to the 1.2700 support zone. 

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