GBP/USD: Cable Poses Short-Cover Rally Ahead of No-Confidence Vote

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GBP/USD Talking Points:

– The British Pound is rallying ahead of a no-confidence vote set to take place today. The vote is confidential, but it appears as though PM Theresa May has adequate party support to survive this afternoon’s test. As indications of Tory support have filtered-in throughout the morning, GBP has pushed-higher in what appears to be a short-covering rally. The pair has begun to test the 1.2671 level that had previously set the yearly low around a key area of Fibonacci support/potential resistance.

– The big question is what happens after a Theresa May win of today’s no-confidence vote. While this would provide a bit of consistency on the leadership-front, the problem remains that the PM’s Brexit plan is lacking for support and unlikely to pass Parliament. While Donald Tusk alluded to the potential for some flexibility on the European side, the balancing act of putting together a plan that would please both UK Parliament and Europe appears to be a daunting task.

– DailyFX Forecasts on a variety of currencies such as the US Dollar or the Euro are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

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GBP/USD Bounces From 1.2500 Ahead of No-Confidence Vote

Later today brings the no-confidence vote for UK PM, Theresa May. While this has been a possible outcome for some time, it appears as though she has the support from her Tory party to survive the vote; and this would provide her with a year of safety per the rules of 1922. While this does assure some element of consistency in leadership atop the UK, the same problems that were pushing the British Pound lower at the start of this week remain. PM May is saddled with the difficult task of pleasing both UK Parliament and Europe with a Brexit plan and, at this point, that doesn’t appear possible as a number of key issues remain.

For its part, the British Pound is rallying as indications have come-in that PM May will win this afternoon’s vote, and this appears to be coming from short-covering after an earlier week spill down to fresh 18-month lows.

GBP/USD Hourly Price Chart: Rally to Resistance at Prior Fibonacci Support

GBP/USD: Cable Poses Short-Cover Rally Ahead of No-Confidence Vote

Chart prepared by James Stanley

Bears have remained active in the British Pound and as looked at on Monday, the 1.2500 level has come back into play. Monday saw a support bounce just above this threshold, but sellers came back with aggression on Tuesday to finally test below that psychological price. As can often happen around a test of a level of that nature, seller motivation slowed below 1.2500 until prices soon posed a topside bounce. That bounce got a bit of an assist earlier this morning as Tory support began to show through headlines, and that bounce soon turned into a rally as prices jumped back above the 1.2600 level.

This remains a very active and fluid situation, and prices are fast closing-in for a resistance test at that prior area of support around 1.2671. This is the 23.6% Fibonacci retracement of the ‘Brexit move’ in the pair, and this is derived from the same study which helped to set the yearly high in the pair at the 78.6% retracement earlier this year.

GBP/USD Weekly Price Chart

GBP/USD: Cable Poses Short-Cover Rally Ahead of No-Confidence Vote

Chart prepared by James Stanley

GBP/USD Moving Forward

The big question around GBP/USD at this point is how deep this rally might run. Given the strength with which sellers broke through support earlier this week, there may be some more room to run. That prior support area of 1.2671 remains of interest for support turned resistance, and this price appears to be helping to bring sellers into the fray following this morning’s bounce. On the below two-hour chart, I’ve added another potential level of interest around the 1.2750 psychological level. A hold of resistance at this area could keep the door open for short-side approaches; as the bearish trend-line that’s held the highs for the past two weeks would remain in-play.

The next area of resistance interest in the pair resides around 1.2850; and if this is taken-out, the bearish approach should come into question as a deeper move to 1.3000 would begin to look more likely. This could make that area around 1.2850 especially interesting as an invalidation level for stop placement on bearish approaches.

GBP/USD Two-Hour Price Chart

GBP/USD: Cable Poses Short-Cover Rally Ahead of No-Confidence Vote

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q4 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

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