GBP/USD forms hammer pattern ahead of key Brexit deadline

GBP/USD forms hammer pattern ahead of key Brexit deadline
Written by:
Crispus Nyaga
14th October, 13:21
Updated: 14th October, 13:22
  • The GBP/USD pair rose as the UK and the EU are set to continue Brexit talks past the tomorrow's deadline.
  • Analysts believe that the two sides will ultimately reach a deal by the December 31st deadline.
  • The pair is also reacting to the strong US PPI data.

The GBP/USD price rose by 0.50% as the market reacted to a speech by Boris Johnson and US producer price index (PPI) data. It is trading at 1.3000, which is higher than the intraday low of 1.2870.

GBP/USD rises on Brexit talks

EU and UK to extend Brexit talks

The United Kingdom will continue deliberating with the European Union about Brexit past the tomorrow’s deadline. According to Reuters, EU leaders will request Boris Johnson to accelerate talks ahead of the January 1 deadline in their meeting tomorrow.

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David Frost, the Chief UK negotiator is expected to say that a deal was still possible even as significant challenges lie ahead.

The two sides have been negotiating since March this year with a goal of creating a unified trading agreement. However, after eight rounds of talks, they are yet to reach an agreement as significant barriers remain.

For example, the European Union has proposed having similar regulations between the two sides in a bid to create a level playing ground. The UK has opposed this, saying that it needs to set its regulations as an independent country.

Similarly, the UK has insisted that it deserves a right to implement policies of its rich fishing waters. France, a major consumer of UK fishing waters, has said it will reject any deal that does not give it access to the fishing waters. Still, analysts and participants in the gambling market believe that the two sides will reach a deal eventually.

US producer price index (PPI) rises

The GBP/USD price also reacted to the positive PPI data from the United States. According to the Bureau of Labour Statistics (BLS), the PPI increased by 0.4% in September, leading to an annual increase of 0.4%. The PPI rose by 0.3% and 0.6% in July and August, respectively.

The PPI increase was mostly because of a 0.4% increase in final demand for services. The price of goods also rose by 0.4%.

Excluding the volatile food and energy products, the PPI rose by 0.4% and an annualised rate of 1.2%. That was the highest it has been since March this year. It was also the third consecutive months of gains.

The upbeat PPI numbers came a day after the bureau released the consumer price index (CPI). The data showed that the headline CPI rose by 1.4% in September while the core CPI rose by 1.7%.

GBP/USD technical analysis

GBP/USD
GBP/USD technical analysis

The four-hour chart shows that the GBP/USD pair formed a hammer pattern, with the lowest level at 1.2860. A hammer is usually a bullish candlestick pattern. It has also moved above the four-hour exponential moving averages and is slightly below Monday’s high of 1.3050. It has also risen above the standard pivot point. Therefore, I expect that the pair will continue rising as bulls aim for the next resistance at 1.3050.

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