GBPUSD: British Pound Weakness is Here to Stay

Summary:

The GBPUSD will likely continue being weak according to an analysis by Danske Bank. The UK is planning to break international law on Brexit.

The GBPUSD pair is down for the sixth consecutive day as investors start to price-in Brexit risks. The pair is trading at 1.2970, which is substantially lower than the year-to-date high of 1.3480.

Brexit and a stronger US dollar are the main reasons why the GBPUSD has been in a strong downward trend recently. As the eighth round of talks goes on in London, few expect the two sides to reach an agreement on key issues. Furthermore, they have not made any major milestones in the previous seven rounds of talks.

Importantly, these talks come at a time when Boris Johnson has said that a no-deal scenario will be a positive outcome for the UK. It also comes at a period when the UK has said that it intends to break international law by attempting to rewrite parts of the agreement it signed last year. This is happening because the government plans to table a bill that will go against what Johnson signed last year as he wanted to prevent a hard border in Northern Ireland.

The UK stands to lose if it exits the European Union without a trade agreement. That is because the country sells more than 47% of all its goods to the EU. On the other hand, EU countries sell just below 5% of their goods to the UK. At the same time, many multinationals in the UK have said that they will leave if the UK fails to reach a deal.

With no major economic data from the UK and the US, traders will continue to focus on the new developments on Brexit.

GBPUSD technical outlook

The daily chart below shows that the GBPUSD pair formed a shooting star pattern on 1^st September. As you will find in our free forex training course, this candlestick pattern is usually bearish in nature. And true to this, the currency pair has been in a sharp downward trend as it has dropped in the past six consecutive days.

The pair has also moved below the 25-day and 50-day exponential moving averages. It has also tested the important psychological support level of 1.3000. Therefore, I suspect that the pair will continue falling as sentiment on Brexit remains weak. Indeed, analysts at Danske recently wrote that:

“That said, we do not see the case for further GBP strengthening near-term, given Brexit negotiations are about to move into their final stage.”

On the flip side, a move above the psychological level of 1.3000 will invalidate this trend