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British Pound Under Clouds on Brexit Talks: GBP/USD, EUR/GBP, GBP/JPY

British Pound, GBP/USD, EUR/GBP, GBP/JPY, Brexit – TALKING POINTS

  • GBP/USD’s timid price action around March swing-high hinting at near-term pullback?
  • EUR/GBP may get entanglement in a net of support before continuing its prior uptrend
  • GBP/JPY trading in a compression zone – is a downside or upside breakout more likely?

GBP/USD Analysis

GBP/USD price action has become more timid as it hovers below the pre-March selloff swing-high at 1.3097. Friction at this level could signal the start of a cooling-off period and retreat to familiar resistance-turned-support at 1.2877. What happens at this level may be key. A bounce might suggest another attempt at retesting 1.3097 while a break below 1.2877 opens the door to flirting with 1.2816 and other subterranean levels.

GBP/USD – Daily Chart

Chart showing GBP/USD

GBP/USD chart created using TradingView

EUR/GBP Forecast

EUR/GBP’s fall below the late-April uptrend was caught by a net of support at 0.8986, but the pair may now get entangled at an inflection point at 0.9019. While the slope of appreciation appears to have been invalidated, this by no means suggests that a near-term retest of the bottom layer of the 0.9144-0.9171 resistance range is out of the question. Clearing that zone with follow-through could lead to retesting the March swing-high at 0.9417.

EUR/GBP – Daily Chart

Chart showing EUR/GBP

EUR/GBP chart created using TradingView

GBP/JPY Outlook

GBP/JPY appears to have entered a compression zone between the late-June uptrend and 2019 resistance at 138.872. If the confined space catalyzes a move higher, the pair’s gains may be capped at 140.916. Conversely, capitulation could see GBP/JPY retest support at 135.718. If the proverbial bearish drill punctures that level, investors may then have to clear the subsequent substrate at 133.822 where they may encounter friction.

GBP/JPY – Daily Chart

Chart showing GBP/JPY

GBP/JPY chart created using TradingView

Brexit Battering British Pound

On Tuesday, EU Brexit chief negotiator Michel Barnier tweeted a document with guidelines and an alarming warning about cross-border friction following the December 31, 2020 deadline. An excerpt from the report states that:

“There will be broad and far-reaching consequences for public administrations, businesses and citizens as of 1 January 2021, regardless of the outcome of negotiations. These changes are unavoidable and stakeholders must make sure they are ready for them” European Commission.

Naturally, premonitions about the economic impact of the divorce on businesses who are already reeling from the coronavirus pandemic brews fiercer storm clouds over the British Pound. EU and UK officials are expected to hold additional rounds of negotiations in the fall ahead of a key summit among the 27 European leaders to ratify – or at least they hope – a trade agreement.

— Written by Dimitri Zabelin, Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitriTwitter