- Indecision around UK politics remains to the fore with more than just confusion regarding the path of Brexit into the end of this month, with the 31st October now looming.
- The UK political backdrop is very fragile, with outcomes very difficult to predict for the coming days, weeks and months.
- Our best guess is for a general election, a hung parliament and a coalition government, with Labour and the Liberal Democrats involved.
- Although this scenario would likely make a no deal/ hard Brexit less likely, it would also been seen as a negative for the economy by financial markets.
- This current uncertainty keeps Sterling in a vulnerable position, whilst the US Dollar is still favoured as a safe haven in the current climate, which leaves downside risks for GBPUSD.
GBPUSD: Downside risk to key 1.2231
A rebound failure Monday from just above 1.2336 resistance (from 1.2334) to leave a negative tone from last week’s plunge through 1.2391 support to confirm a Head and Shoulders Top pattern, to leave risks lower for Tuesday.
The mid-September probe above 1.2518 set an intermediate-term bull trend
- We see a downside bias for 1.2270; break here aims maybe for key 1.2231 and maybe 1.2208.
- But above 1.2346 opens risk up to 1.2381.
Intermediate-term Outlook – Upside Risks: We see an upside risk for 1.2784/1.2814.
- Higher targets would be 1.3000 and 1.3184.
- What Changes This? Below 1.2231 shifts the intermediate-term outlook straight to an intermediate-term bear theme.
4 Hour GBPUSD Chart