Daily Market Recap - GBPUSD

The GBPUSD has broken down below the critical 1.30 mark on Thursday as the Brexit trade deal negotiations continue to hang in the balance after the controversial decision by the UK government yesterday to unilaterally modify part of the UK-EU Brexit deal by tabling new legislation called the “Internal Market Bill”.

By doing so, the UK government would in effect renege on a previously agreed-upon international treaty and reopen the significantly contentious issue of trade along with the Irish and the Northern Irish border, which has been the focal point of the initial Brexit deal dubbed the “Irish Backstop” in the early stages of the withdrawal process. Additionally, the move puts into question other countries perceived level of integrity of the UK as a trade partner.

The UK was given special treatment by the EU regarding its neighbor Ireland in order to preserve the free flow of goods between the two Irelands in a post-Brexit world. The purpose of this was to avoid a flare-up in historical grievances between the two nations and protect the EU single market from any abuses on either side.

However, this new Internal Market Bill explicitly puts into question the clout of the Brexit agreement in dealing with the specific “Irish Backstop” issue where with the new legislation, ministers in the UK will be able to make regulations which ignore “any provision of the Northern Ireland Protocol [and] any other provision of the EU withdrawal agreement …”; effectively nullifying compromises made in the original Brexit agreement.

Markets were completely blindsided by this new piece of legislation and responded in turn quite strongly as we have seen today. The odds of a no-deal Brexit have substantially increased in light of recent events and the GBPUSD looks set to remain under pressure in the short term as a result.

From a technical perspective, the GBPUSD is edging towards a test of the 1.28 key psychological support level. We can expect some degree of reversal at that point with value seekers buying into the likelihood of strong rejection. Price action in the run-up to the 1.28 mark will be the deciding factor for whether bulls will come back into the fray.

(Chart Source: Tradingview 10.09.2020)

The main trend in the GBPUSD is down, with both the MACD and RSI indicators pointing firmly lower. Theres a high chance of the RSI making a foray into the oversold levels in the near term which may be a signal for buyers to re-enter in the market. For now, a break below the 1.28 will open the door to a test of the 1.26827 support zone. On the flipside, a move back above the 1.29885 support turned resistance level may trigger a consolidation move for the GBPUSD.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.