Currency Pair of the Week: GBP/USD

Volatility could be high on headline risk

Brexit 4

Currency Pair of the Week: GBP/USD

Yikes! Where to start?  There is much to say about why there is volatility risk in this pair over the next week, but primarily, there are 2 reasons:

  1. The ongoing “end” to the Brexit negotiations
  2. The possibility of a US fiscal stimulus package and the US elections

Before the weekend, we were left with notification from Boris Johnson that negotiations were off, but the two sides agreed to “talk” this week.  It appears that the UK and EU have decided to hold the next joint committee meeting in November.  Although we have passed Boris Johnson’s self-imposed October 15th deadline, the Prime Minister has said all along that if he sees real progress being made, the UK will continue to negotiate after then.  The EU’s Sefcovic said that the November meetings will be intensified at all levels.  In addition, the EU’s Barnier has said he spoke with UK Frost, and is ready to continue.  They are currently waiting for the UK’s response. However, moments before this article was published,  UK’s Cabinet Minister Gove said trade negotiations are in effect ended, but the door is not closed.   Obviously, the situation is extremely fluid.  Watch the tape bombs this week!! Any headlines on these negotiations are causing the GBP to move erratically.

As far as a US fiscal stimulus package for more relief from the coronavirus, Nancy Pelosi has put a 48-hour deadline on any deal, otherwise nothing will be done until after the elections.  However today,  Pelosi and Treasury Secretary Mnuchin will hold a press conference at 3:00pm ET to discuss progress on the negotiations.  Senator McConnell has agreed to put any negotiated deal on the Senate floor, according to Chief of Staff Mark Meadows.  However, it doesn’t seem like anything is coming down the pike at this moment.  At last check, President Trump was looking for a $1.8 Trillion deal, the Senate was looking for a $600 Billion deal, and the House was looking for a $2.2 Trillion deal.  Any headlines or tape bombs over the next few days could cause volatility in both stocks and the US Dollar.

The US Presidential Elections are 2 weeks away!  Most polls have Joe Biden in the lead by a large margin.  Thursday is the final debate between the 2 candidates.  Although not much new information is expected from the debate, changes in the poll numbers leading up to the election could cause volatility in the US Dollar.

Technically, GBP/USD is trading back under, and retesting, the long-term downward sloping trendline dating back to June 2015 near 1.3000.  In addition, this level is a psychological round number resistance level.

Source: Tradingview, City Index

On a daily timeframe,  GBP/USD is trading up against a short-term downward sloping trendline from the highs on September 1st.  This comes across at 1.3010 and acts as first resistance.  One can see how whippy price action has been over the last week, mainly due to headlines.  Above this trendline, bulls can run price up to the September 1st highs near 1.3485. First support comes in at Fridays lows near 1.2860.  Below there, price can run back down to horizontal support at the 38.2% Fibonacci Retracement level from the March lows to the September 6th highs near 1.2690. 

Source: Tradingview, City Index

If you are trading GBP/USD this week, make sure to have tight stops and use strong risk management.  Volatility could be high on headline risk and traders should make sure they are protected.


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