- Summary:
- GBPUSD is trading at its 19-month highs. But now that the UK general elections are done and a Brexit deal could soon be passed, what's next for the pound?
Price action on GBPUSD last Friday was a classic “buy the rumors, sell the news” move. The currency pair initially rallied to its 19-month highs at 1.3513 on polls which showed that the Conservatives may win majority in the UK general elections. However, as the actual results came pouring in and confirmed the poll predictions, GBPUSD steadily tracked lower. The currency pair finished 180 pips lower from its highs at 1.3333.
All Eyes on UK Prime Minister Boris Johnson
Polls leading up to the UK general elections consistently showed that the Conservatives were ahead of other parties. In fact, the Tories were always revealed to have substantial leads against the Labour Party. Therefore, a dominant win by Prime Minister Boris Johnson came as no surprise to market participants and was already priced in.
Now the difficult task of maneuvering the UK’s divorce from the European Union will be in the spotlight. It would seem that market participants were more concerned about sorting out the uncertainties brought about by Brexit for the past three years. No one wondered about how good of a deal Johnson can get out of the EU. Now that Brexit deal looks likely to be passed with the Tories holding majority seats in parliament, investors want to know if the UK economy can thrive outside of the EU.
The US and China Agree to a Trade Deal?
Of course, the news that the US and China have reached a phase one deal also helped drive GBPUSD lower on Friday. It was announced by US Trade Representative Robert Lighthizer that a deal was “totally done, absolutely.”
US tariffs on Chinese goods will either be rolled back or cancelled. This news came on the eleventh hour, just before the December 15 deadline on additional levies were supposed to be implemented. It’s worth noting that China has yet to confirm if it has agreed to buy at least 200 billion USD worth of US goods in the next two years.
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Economic Reports Due Today
For today, there are a few economic reports that could move the currency pair.
At 9:30 am GMT, the manufacturing PMI for November from the UK is eyed to print at 49.1. Meanwhile, the services PMI is anticipated at 49.6. Then at 2:45 pm GMT, the US manufacturing PMI is estimated at 52.6 while its services PMI is seen at 52.0.
The Bank of England (BOE) is also scheduled to release its Bank Stress Test results and Financial Stability report at 4:00 pm GMT.
Better-than-expected UK PMI numbers and optimism on the country’s banking system could be bullish for the pound. On the other hand, if economic data or the BOE’s report fails to impress, we could see GBPUSD slide even further on the charts.
GBPUSD Outlook
After last Friday’s drastic rally, we can see that GBPUSD has pared some of its gains. When you draw the Fibonacci retracement tool from the low of December 12 to the high of December 13, the 38.2% Fib level held nicely.
Now, if there are enough buyers in today’s trading, we could see the currency pair rally back up to last week’s highs. The area around 1.3515 will be the level to watch out for near-term resistance. If this does not hold, the next resistance will be around 1.3650 where GBPUSD hit resistance way back in September 2017.
On the other hand, a close below the 38.2% Fib level could mean that sellers may push the currency pair to the rising trend line for support (from connecting the lows of November 27, November 29, December 2, and December 12). If support at the trend line does not hold, GBPUSD may revisit its November 29 lows around 1.2825.