Bearish Divergence at 1.30 Sends GBPUSD Lower Ahead of the E.U. Summit

Summary:

GBPUSD trades with a bearish tone after a divergence rejected it from the 1.30 level. The Brexit resolution still likely to trigger more volatility ahead.

The 1.30 level keeps playing a pivotal role in the GBPUDS pair. This time, the market formed a bearish divergence right above it, triggering a sharp rejection ahead of the all-important E.U. Summit at the end of the week.

Cable traders must calibrate their expectations as news from both sides of the Atlantic is likely to shift prices in the weeks ahead. On the one hand, the self-imposed Brexit deadline comes due at the E.U. Summit to take place on 15-16 October. On the other hand, the U.S. elections are on a straight line, the race for the White House and the Congress seems tight, and the market expects more fiscal stimulus.

All Eyes on the E.U. Summit

The prospects of a no-deal Brexit rose by the day. While everyone wishes for a deal, as it is clearly in both parties’ interest, there seems to be still some significant divergence of opinions between the two parties.

At this week’s summit, the E.U. members are expected to say that the progress in negotiations is still not sufficient for a deal to be reached by January 1^st, 2020. More is needed. Also, rumors have it that the E.U. leaders prepare to send a strong signal to step-up preparations for a no-deal Brexit.

If this is just another card on the negotiations table, no one really knows. What is sure is that the GBPUSD reacted promptly at the 1.30 level and finds no buyers as of yet.

GBPUSD Bearish Divergence

The GBPUSD bearish divergence against the pivotal 1.30 provided the perfect setup for bears. But at this point, it is unlikely that the pair’s bearish decline will continue for the simple reason that the market will likely expect more details both from Brexit and from the U.S. elections front.

Bulls may want to buy another move above the 1.30 mark in an attempt for the price to move above the confluence area. For this, 1.28 acts as invalidation, while 1.33 is the first target in a possible stronger move. The fact that the RSI already gets closer to the oversold level helps too.