Sterling moves back into the spotlight with the US closed for a holiday on Monday and debate on the Brexit bill getting underway in the House of Lords. Meanwhile, mixed technical signals suggest the potential for a significant move in either direction, perhaps both.
For the last four months, GBPUSD has been trading back and forth in a wide channel between $1.1970 and $1.2690. Last month, a successful retest completed a big double bottom but earlier this month, resistance at the top of this range held as well.
In recent days, the pair has slumped back into the $1.2400 to $1.2500 range holding above its 50-day average but struggling to overcome round number resistance. Last Friday the pair successfully retested moving average support but the RSI broke under 50 signalling a downturn in momentum.
These mixed technical signals suggest the potential for a significant move should GBPUSD break out of the current range. Next potential downside support tests appear near $1.2355 then $1.2255 with next potential resistance near $1.2570.
Trading in Cable could be influenced by a tug of war between two forces, political and economic. On the political side, GBP swings
have been tied to the ups and downs of Brexit uncertainty. Clarity surrounding the government’s stance has boosted Sterling, while uncertainty over next steps has dragged on the currency.
This week, debate in the House of Lords on the Brexit bill begins. Should the bill sail through without amendment as it did in the House of Commons, GBP could rally. On the other hand, should the Upper Chamber demand amendments or if debate drags on, GBP could slide further. Adding to the stakes, the Government has threatened to revisit the role of the unelected house should it reject the will of the people from last year’s referendum.
The timing of when Article 50 could be triggered to kick off the Brexit process may also have an impact on trading with the street thinking the sooner the better. When the timetable moved up to early March from late March, GBP rallied but comments last week from Brexit minister Davis that the trigger date could slip a bit dragged Sterling back down. There is an EU summit being held on March 9-10 which is an unofficial goal with the official target still the end of March. Any indications of when Article 50 may be triggered could also have an impact on trading.
Economic data may also continue to impact trading. Overall, the UK economy has been doing really well since the vote to leave the EU. Friday’s decline came on the heels of a disappointing retail sales report. It’s unclear if that was due to concern over Brexit or a normal decline after several very strong months for consumer spending. Wednesday’s UK GDP report could also spark economic trading action.