TECHNICAL ANALYSIS

Sterling falls as UK Prime Minister Johnson responds with call to prepare for a no-deal Brexit


GBP / USD drops around 100 pips before getting closer to 1.2900 now

GBP / USD S1 16-10
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Cable was advancing near its 200-hour MA (blue line) earlier at 1.2960 before UK Prime Minister Johnson offered a surprise response at the EU summit yesterday calling for preparations for a no-deal Brexit by January of next year.

This saw sellers push the price up to 1.2865 near the week’s low, before gaining ground amid a test of the 50.0 retracement level to 1.2879 as well.

Currently the price action is volatile but is holding around 1.2880-00 for the most part.

All other things being equal, the risks are still on the downside for the pound based on what we know so far. If Johnson succeeds in pulling the plug, the economic consequences would be dire and it’s not something the market should take lightly.

That said, the first consideration remains something that can overwhelm the narrative in the short term and weigh on the pound amid fears of a “ worst case scenario. ”

Watch out for a break below this week’s low at 1.2863. This will open the door very well for a push towards the 100 day moving average @ 1.2836 thereafter and sellers could gain more momentum if this gives way in the coming sessions.

As for the risks to watch for now, that will be the EU’s answer to the question. But I think in the next week or two both sides will be playing poker and saying they are in agreement to seek a no-deal outcome until someone decides to reach out.

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