Sterling Dives Amid Political Concerns

May 20, 2019 | Axiory - The pound continued to decline sharply over the last days and the GBPUSD pair dropped to the 1.27 mark, a level unseen since the middle of January. Investors sold sterling every day during the last week and the pair also fell below the major support of 1.2780, changing the medium-term trend back to bearish.

Macro news

Earlier in the week, Theresa May told party colleagues she would set a timetable for her departure next month, irrespective of whether her proposed EU Withdrawal Agreement passes in the House of Commons at the fourth time of asking.

Given the pro-Brexit mood among Conservative party members, it’s likely that May will be replaced by a “Hard Brexiteer” more comfortable with the prospect of leaving the EU without a deal. Moreover, the former Foreign Secretary Boris Johnson had said he would most likely run for the leadership, which caused another selling wave of the GBPUSD pair.

Brexit aside, investors will pay attention to many important British macro news over the next days, such as inflation report hearings on Tuesday. During these hearings, the BOE Governor and several MPC members testify on inflation and the economic outlook before Parliament's Treasury Committee.

On Wednesday, inflation figures will be released, including the CPI and PPI indices, while on Friday UK retail sales are due. All these numbers could cause some serious volatility on the pound.

Technical analysis

From the technical point of view, as long as the GBPUSD pair remains below the previous lows of 1.2780, the outlook seems negative, with rallies to this level probably being sold. However, the cable appears much oversold, thus a possible bounce could occur on Monday/Tuesday.

Another level to watch for bears will be at 1.26670, where the strong horizontal support zone lies. If not held, further depreciation toward 1.26 could occur.

On the upside, should the resistance at 1.2780 falls, bulls could push the pair back to the 200-day moving average at 1.2970. Trading in the current week will be interesting with elevated volatility on the horizon.

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