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Currency Analyst since 2010

Can pound sustain recovery?

GBP/USD recovered on Wednesday from the levels below 1.2100 gaining more than 1% during the day. Sterling strengthened as British Prime Minister Theresa May accepted that the Parliament should be allowed to vote on her Brexit plan. Asa a result, concerns about the prospect of “hard Brexit” and its negative impact on the nation’s economy have eased and some GBP shorts were covered.

As far as we can judge, May’s move to reduce the worries can really mean much for the pound providing the currency with support in the medium term. If the Parliament thinks that May took a too hard position, it can debate her actions and make her soften approach to negotiations with the EU. This should keep the country’s departure from the European Union less economically painful.

At the same time, investors will likely remain cautious about the pound after its rapid decline seen last week. Moving averages at H1 are still declining pointing at the downtrend with resistance line around 1.2420. Next resistance is at 1.2465 (weekly pivot). Confidence to the sterling will restore only if it returns to the pre-selloff levels above 1.2800, and it’s a big distance for the bulls to get over.

Another thing a trader has to take into account is the US side of things. FOMC September meeting minutes are due at 18:00 GMT. If the document contains clues that the Federal Reserve is going to raise rates in December, the market players may use the pound’s recent recovery to enter new shorts. Note that the currency is no longer oversold. 

 

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