Date: 28 Jan 2019

The British pound is set for another volatile week on the foreign exchange market, as UK lawmakers prepare to vote on British Prime Minister Theresa May’s Plan B Brexit bill on Tuesday. If the alternative Brexit deal is rejected in Parliament, the chances of the United Kingdom crashing out of the European Union without a deal on March 29th increase dramatically.

The British pound rallied over two percent against the U.S Dollar last week, as news surfaced that the Northern Irish coalition DUP party have agreed to back British PM Theresa May’s new Brexit plan. The Northern Ireland border issue has been the main hurdle blocking Conservative Party rebels from backing PM May’s initial Brexit offering.

Aside from Parliament voting on Theresa May’s alternative Brexit deal, UK lawmakers with also debate alternative Brexit steps on Tuesday, including delaying the United Kingdom’s departure from the EU. Members of the ruling Conservative party and opposition Labour party are set to request an extension to Article 50, giving the United Kingdom more time to negotiate with Brussels.

Financial markets are growing increasingly confident that a Brexit deal will eventually be struck or an extension of Article 50 will happen before March 29th. With growing pressure from UK business figures and overseas leaders, investors are hoping that a resolution or indeed a temporary resolution can finally be found this week.

Recent economic data from the world’s fifth largest economy has shown that the United Kingdom economy has remained fairly resilient despite Brexit headwinds. The UK unemployment rate fell back to a four-decade low last week, hitting 4.0, while data showed UK wage growth is still increasing.

The United Kingdom’s Services PMI also increased to 51.2 last month, after posting a twenty-eight month low reading of 50.4 in November. While the sector remains fairly stagnant, the reading still pointed to overall expansion, while the French services sector posted its second consecutive month of contraction last week, with a dire 47.5 reading.

 

GBP/USD Daily Candlestick Chart | Source: ActivTrader Platform

GBP/USD Daily Candlestick Chart | Source: ActivTrader Platform

 

Looking at the technicals for the GBP/USD pair, a major upside breakout could occur if the 1.3300 level is convincingly broken. A sustained rally on bullish news could take the pair toward the 1.3500 to 1.3600 price range.

If we see bearish news this week, we could see a sharp correction back towards the 1.3000 to 1.3100 area. Immediate support is found at the 1.3130 level, with a further break below the 1.3095 support level likely to trigger technical selling towards 1.3000.

 

Written by Nathan Batchelor, External Analyst

 

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