GBP/USD: Buyers hold on to near-term control as meaningful vote on Brexit deal looms

Technical Analysis

Author: Justin Low | gbpusd

GBP/USD buyers defend the 100-hour moving average in downside move earlier

Buyers continue to keep the near-term bullish momentum going as price fails to break below the 100-hour MA (red line) earlier when it fell to a low of 1.2748. However, the upside in the pair remains capped from the 1.2800 handle as well as the daily resistance from the September low @ 1.2786.

Although the movement in the pair is largely driven by the dollar so far, the bigger risk factor at play will be the meaningful vote on May's Brexit deal next week. At this point, there is still plenty of uncertainty surrounding the vote but one thing is certain is that May won't get enough support to win over parliament when the time comes.

European leaders aren't going to offer her the necessary legally-binding assurances, so what is currently on the table is what is going to be when the vote comes about next week. That means we're left with either May choosing to delay the vote again like she did in December and/or choosing to extend Article 50, something which she has so far claimed that the government will not pursue.

However, when push comes to shove, she is a politician at the end of the day, and she will do what it takes to maintain her best interests (as evident by the postponement of the vote last month).

The issue here is that latest developments are looking to complicate matters as Labour party leader Jeremy Corbyn is looking to fight for an election to be called should May lose the vote next week. That throws further uncertainty into the air which will only serve to muddy the picture surrounding the pound.

That said, there are silver linings to be had though despite the latest setbacks.

On the one hand, an extension to Article 50 means that UK can at least avoid a no-deal Brexit outcome. But on the other, the uncertainty surrounding Brexit will only weigh on the economy further and prolong the BOE's limbo on rate decisions.

As for a snap election, if Corbyn and his Labour party fails to oust May's Tory party, it'll only serve to reinforce May's position in Brexit negotiations and that means in all likelihood the UK could be heading towards some form of deal with the European Union after a series of delays. At the end of the day, that is also good news for the pound.

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