GBP/USD Daily Forecast – GBP/USD Turns Dovish on Brexit Uncertainities
Once again, Brexit is the focus in the Asian open today as UK’s Prime Minister Theresa May has been forced to abandon plans for an emergency cabinet meeting to approve a Brexit deal this week. A meeting had been slated today but the fierce resistance in her cabinet and Brussels threatening to derail the path to an agreement has made it increasingly unlike that a special EU summit relating to Brexit talks to be held in November which is not great news for Sterling bulls. Broad-market hopes for a last-minute Hail Mary Brexit clincher are set to wane this week, with the usual stream of rhetoric-heavy Brexit headlines over the weekend slamming the needle firmly to the ‘fear’ side of the gauge. As of writing this article, GBP/USD pair is trading at 1.2911 down by 0.46% on the day.
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Brexit Talks Unlikely To Make Any Progress This Month
Monday will see a sparsely-populated economic calendar for the GBP/USD, with no meaningful data slated for the UK, and the upcoming US session will likewise see thin volumes with US money markets out for the Thanksgiving long weekend, but Tuesday sees UK Average Earnings in the pipe, and Cable traders will be hoping for an early positive twist to the typical flow of headlines before the key economic data comes in for a landing. The dollar built on last week’s gains and rose towards a 16-month high on Monday as traders expect the U.S. Federal Reserve to keep tightening monetary policy and bullish influence surrounding US Greenback was further boosted owing to uncertainties surrounding Brexit talks.
When looking from technical perspective, the implied volatility premium for the GBP puts has risen sharply. The one-month 25 delta risk reversals are currently being paid at 1.087 GBP puts vs 0.817 GBP puts. The growing demand for GBP puts (bearish bets) indicates the investors are likely expecting a deeper drop in the currency. At press time, the GBP/USD pair is trading at 1.2930. Meanwhile, the Irish border issue remains a stumbling block in Brexit talks. As situation in European union takes a turn for worse, risk appetite in market took a nose dive during Asian market hours. Expected support and resistance for the pair are at 1.2900, 1.2880, 1.2850 and 1.2955, 1.2995, 1.3040 respectively.