GBP/USD trades close to the 1.2600 handle ahead of European trading
The topside move last week saw cable rise towards testing key daily resistance from the 50.0 retracement level as well as near the 200-day MA (blue line).
Buyers fell short of cracking above both levels and some negative Brexit news over the weekend has seen the pound move lower to start the new week.
So, what happens now for cable?
The topside resistance can be well defined now by the layers above and that will ultimately prove to be the next “breaking point” in cable for any further upside move.
The move lower to start the week is a bit of a blow for buyers but they are still well in the driver’s seat in dictating price action for now. Sellers will have to break below 1.2590-00 as the first step in order to establish more control in the near-term.
However, I reckon the key turning point remains around the 1.2500 handle where if we do see a move below that, then sellers will start to have more confidence to drive price lower.
In terms of the Brexit debate, the optimism is beginning to wane and that is the real threat for any further squeeze to the upside.
There are two significant hurdles now for Boris Johnson after the DUP has said that they can’t get on board with his Brexit proposal.
The first being can he get enough support in parliament for a deal without the DUP? The second is will European leaders agree to his Brexit proposal in reaching a deal?
I am doubtful on both fronts and the news over the weekend only serves to reinforce that sentiment. The overall price action in cable continues to side with buyers for now but I’m less confident of a further upside move now than I was on Friday.
If anything else, we’re moving back towards the selling on rallies approach once again and I reckon that is the next best play given the weekend’s developments and that risk can be clearly defined and limited by the levels above.