GBP/USD: Believing Boris's Optimism – For Now

  • GBP/USD has been trying to find a bottom as a new week begins.
  • PM Johnson's growing issues and the opposition's next moves are eyed.
  • Monday's technical chart is pointing to further falls for cable.

Prime minister Boris Johnson is in trouble – on at least three fronts. Charlotte Edwardes, a journalist with The Times, had accused the PM of groping her when he was the editor of the Spectator back in 1999. Former Chancellor Phillip Hammond has accused Johnson of working for his donors – hedge funds that have bet against the pound and want a hard Brexit. And allegations of misuse of public funds during his time as Mayor of London – helping out American businesswoman Jennifer Arcuri – have been referred to a police watchdog. 

These adverse developments have not stopped the energetic PM in opinion polls – where the Conservatives command a hefty lead over both Labour and the Liberal Democrats. It has also failed to stop the PM in his pursuit of leaving the EU by October 31 – but it has prevented the pound from recovering. 
Johnson and his colleagues are in Manchester for the Tories' annual conference – but the action in parliament continues. Opposition parties are meeting to plot the next steps in trying to halt a hard Brexit – as they fear Johnson may disobey or circumvent the Benn Act – a law that forces the government to ask for an extension to Article 50 by October 19. 

Opposition considering next steps

There are several reports and rumors swirling. One option is for the opposition to amend the law and bring forward the date in which the PM must approach the EU for a Brexit delay. Another option is to oust the PM via a Vote of No Confidence (VONC) in which they will have 14 days to find a new MP to lead the government.

Labour Leader Jeremy Corbyn wants to enter Downing Street, ask for an extension, and call new elections. However, the Liberal Democrats and former Conservative MPs cannot bring themselves to supporting the unpopular hard-left leader. If Corbyn were to allow for a veteran MP to take over as PM – the pound could surge. 

In the meantime, uncertainty weighs on the pound. 

Sterling did manage to stabilize after the final read of Gross Domestic Product for the second quarter was upgraded to 1.3% yearly from 1.2% initially reported. Nevertheless, the 0.2% quarterly contraction was confirmed. Meager growth is projected for the second quarter.

In the US, markets remain worried that the US may limit investments in China and delist Chinese companies that are traded in America. The news – and the denial that such a drastic escalation is imminent – comes just as China goes for a weeklong holiday. 

Similar to Johnson, also US President Donald Trump is under fire for Ukraine-gate – his alleged attempt to dig up dirt on potential rival Joe Biden. Ahead of impeachment hearings, the President lambasted political rivals. The scandal adds to political uncertainty even if Trump's chances of being ousted are slim. 

Overall, UK and US politics are set to dominate trading.

GBP/USD Technical Analysis

GBP/USD continues suffering from downside momentum on the four-hour chart and has barely held onto the 200 Simple Moving Average. The Relative Strength Index (RSI) has risen from the lows near oversold conditions – thus allowing for further falls.

Support awaits at 1.2275, which was the low point on Friday. It is followed by 1.2235, that was a swing low in early September. Next, we find 1.2195, that dates back to August.

Resistance awaits at 1.2340, which provided support last week. Next up, 1.2390 separated ranges in early September and remains significant. 1.2415 worked as a support line last week and is resistance now.

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