GBP/USD Daily Forecast – Sterling Tumbles as No-Deal Fears Return

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Published: Dec 17, 2019, 10:22 GMT+00:00

Boris Johnson plans to put a stipulation in the Brexit divorce agreement to prevent any delays. Even if that means leaving without a deal.

Sterling Exposed to Major Downside Risk

Investor optimism turned from one extreme to another after Johnson’s latest announcement put a no-deal Brexit back on the table.

The British PM is planning to change the law to legally prevent an extension of the transition period which is expected to finish at the end of 2020.

It’s not the first time Johnson has threatened to leave without a deal, however, the backdrop has changed. He now has a majority which means he is capable of following through.

The British pound rallied 13% as measured from the low in September to last weeks high. The rally was attributed to optimism that the UK would not leave without a deal. For that reason, the pound to dollar exchange rate is at risk of giving a bulk of that rally back, if Johnson were to remain on this path.

It can only be speculated that his plan will be met with opposition and that members of Parliament will do whatever they can to prevent him from going through with it. Nevertheless, Sterling is under pressure and unless the narrative changes, it will likely continue to push lower.

Bank of England’s Governor Carney is scheduled to speak later today in Frankfurt. Considering the developments, he may share an outlook from the perspective of the bank which could cause more volatility.

Technical Analysis

GBP/USD is approaching a notable technical support confluence. It comes from a horizontal level at 1.3145 which is currently near a rising trendline that originates from the October low.

GBPUSD 4-Hour Chart

If the pair breaks below this support area, and Johnson does not change his standpoint, there could be an acceleration in the downward momentum.

The exchange rate has already wiped out the gain that followed the election and is down just over 300 pips from the high last week.

Bottom Line

GBP/USD trades sharply lower as Boris Johnson has reignited fears of a no-deal Brexit.
Major support is seen at 1.3145. A further deterioration in sentiment seems likely if the pair were to drop below it.

About the Author

Jignesh Davdaauthor

Jignesh has 8 years of expirience in the markets, he provides his analysis as well as trade suggestions to money managers and often consults banks and veteran traders on his view of the market.

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