11:23, 11 July

Daily Analysis

Rallies to 1.25 as Fears of no-deal Brexit Persist


Despite rallying a little in the last couple of days to back above 1.25, the GBPUSD has fallen sharply in the last few weeks from above the key 1.27 level down to a seven month low below 1.2450. A few weeks ago it reached a one month high near 1.28 before falling away. The sterling has been attracted to the 1.27 level for the last two months as the GBPUSD has been content to trade very little and consolidate right around this level.
This level may offer some resistance should the GBPUSD rally higher. Significantly through most of May, the GBPUSD fell sharply from the key level at 1.32 down to the five month low before the recent consolidation around 1.27 and fall down to 1.25.
Earlier this year it was trading strongly above the 1.32 level and looking poised to push through 1.34 and attempt to regain a lot of lost ground from previous years. There are few signs of any support presently and even if it does rally a little, it faces possible further resistance at the 1.27 and 1.32 levels again. In early March the GBPUSD fell sharply from an eight month high back down below the key level of 1.32 before rallying again and reaching a nine month high shortly afterwards.
The sterling enjoyed a very positive January as it has moved from below 1.27 up to a three-month high at the resistance level around 1.32, before a subsequent decline. Starting in mid-December, the GBPUSD had slowly but steadily climbed higher from a two year low below 1.25 up to the current key level of 1.27 and beyond. As expected, it met some resistance from the 1.27 level at the end of last year as multiple attempts to push higher were thwarted.
Fears of the United Kingdom crashing out of the European Union (EU) without a deal and a dovish shift in Bank of England expectations continue to impact heavily on the British Pound.  Mr Boris Johnson, who is currently the frontrunner to replace Prime Minister Theresa May, has repeatedly vowed to take the U.K. out of the EU with or without a deal on 31st October.  The Irish finance minister Paschal Donohoe has weighed in warning that his government is stepping up preparations given the “significant risk” of a disorderly Brexit.  “From the point of view of the Irish government we now believe that the prospect of a disorderly Brexit is now a significant risk and the Irish government is meeting to day to review our readiness for this great challenge,” Paschal Donohoe told CNBC earlier in the week.  Mr Donohoe also stated that it was important that new leadership at the European Commission be appointed quickly.  This was necessary, he said, “to allow Europe to respond back to protect our single market and to ensure that we can rise to the risks that might be created in dealing with Brexit.”