GBP/USD Drops Below 1.22 Ahead Of Brexit Deadline

GBP/USD Drops Below 1.22 Ahead Of Brexit Deadline

Events of the Brexit have been the primary driver of the GBP/USD pair in the Forex market for the past couple of years. With another deadline for Brexit approaching fast, the market response has been prominent than ever before. Currently trading slightly above 1.22 level (1.2216), the pair has already made a dip below 1.22 on Tuesday, October 9th, 2019.

The optimism circling the negotiations between the United Kingdom (UK) and the European Union (EU) has quickly waned. As per the financial experts, the negotiations so far have gone down and it seems to continue heading in the wrong direction. Analysts from the Danske Bank have reported that the blame game between the two parties has already kicked off with a possible solution not in sight.

GBP/USD Technical Analysis

With quickly fading chances of the UK striking a deal with the EU by the end of the month, GBP/USD experienced a sharp decline of 0.59% on Tuesday. The 50-day moving average (MA) has also been broken and the pair seems to have stabilized well below the moving average that’s currently located at 1.2253 level. Trading around 1.22 level, this marks the lowest that GBP/USD has dipped in the Forex market since the start of September (September 8th, 2019).

Technical analysis of the 4-hour chart further highlights that GBP/USD has broken the bear flag. An implication of the breakdown is that the currency pair has resumed the sell-off after making a recent high of 1.25. Using the measured move method, analysts have predicted a fall to 1.21 level as the next target for GBP/USD.

The forecast for the bearish trend is further supported by 5 and 10-day moving averages that are consistently descending. The relative strength index is currently under 50 that makes the bearish forecast almost irrefutable.

Multiple Events Hinting At Higher Volatility For Today

Traders are recommended to keep a close eye on multiple macroeconomic events of importance for today, and trade with caution. With Eurogroup Meetings, initiation of the U.S – China trade talks, and FOMC meeting minutes, all occurring on the same day, the market is given to have greater volatility than usual on October 9th, 2019. Blend it with the reducing volumes due to Sterling related uncertainty, the spreads are likely to be higher than usual as well for GBP/USD.

With failed negotiations of last night, the Labor Party intends to hold a vote of no confidence against the PM on October 21st, 2019. Officials at PM’s office, however, have declared that Mr. Johnson is not planning on resigning even if he loses the vote. The Prime Minister has openly stated that he promised to deliver Brexit before the current deadline and plans on keeping his word. Such rising tension in the internal politics of the United Kingdom will also be mirrored in the market volatility.

By Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to Invezz. His passion has given him first hand experience of trading, while his writing means he understands the market forces and wider regulation.

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