For the last six weeks, while the Brexit bill was working its way through parliament, GBP has been sliding. With debate near an end and the government preparing to potentially trigger Article 50 and the beginning of exit negotiations this week, sterling has started to attract renewed interest from traders. A higher low in cable set last week suggests that a big technical base may be forming as well.

Technicals

Last summer, GBP was crushed following the Brexit decision but for the last six months, GBPUSD has levelled off in a sideways range between $1.1975 and $1.2675. Over this time signs of a floor forming have appeared, first with a double bottom retest in January and more recently, signs of a head and shoulders base forming.

Since failing to break out through the top of the channel in late January, GBPUSD has been in a downswing. That now appears to be ending, however. The pair has found support near $1.2160 to form a right shoulder and has broken out over $1.2200 to signal the start of a new upswing.

Meanwhile, RSI finding support near 40 and turning back upward suggests that the recent slide was a downward correction within an emerging uptrend that is ending as accumulation resumes. Recently advancing on $1.2240, next potential resistance appears near $1.2295 then $1.2355 near the 50-day average.

Fundamentals

Brexit-related developments could have a big impact on trading this week. The Brexit bill is back in the House of Commons, where MPs need to decide whether to accept or reject the two amendments proposed by the House of Lords. Rejecting the amendments and proceeding with a clean bill could be seen as more bullish for GBP, considering that the passage of the amendments in the Upper House had knocked GBP downward last week, with traders seeing them as weakening the government’s hand in negotiations.

The actual triggering of Article 50 ,whichever day it comes this week, could generate significant trading activity. If we get to the end of the week without signs of a trigger coming, it could be short-term bearish for the currency.

UK employment data on Wednesday and the Bank of England meeting on Thursday may also have and influence on trading in GBP.

Sentiment toward sterling may also be influenced by developments in Europe this week, particularly through the EURGBP cross. On Tuesday Germany chancellor Angela Merkel goes to Washington to meet with US president Donald Trump, amid friction between the two countries over trade, the currency devaluation Germany gets from being in the eurozone, military spending and other matters. On Wednesday, the Netherlands election may influence trading in the euro, particularly if the euroskeptic Freedom Party does well.

 

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