FX Trading Idea GBP/USD

Technical
From the low of 1.1960 back on early September 2019, Sterling rose to a high of 1.3515 on 13 Dec 2019. Since that high price had declined to a low of 1.2905. The rally off 1.2905 does not look good, failing at the Fibonacci 62% of the decline from the 1.3515 high to 1.2905 low. If price is capped by this Fibonacci correction point, price is likely to decline down to 1.2740 and there is a possibility of an extended move to the Fibonacci 161.8% projection point at 1.2540

Stochastic looks weak. Stochastic was unable to rally past the mid-point of its range and is there is a bearish crossover. Stochastic looks like it is going to head back to the oversold extreme zone again. MACD has just turned bearish.There was a bearish MACD crossover just below the zero line. Both momentum indicators are hinting of further price downside ahead.

Fundamental

Brexit withdrawal agreement deadline is on the 31 Jan 2020. With Boris Johnson’s election win, with his parliament majority, it would be easier for PM Johnson to get his version of the withdrawal deal through the UK parliament. This is also likely to have been factored in by the market by now. What comes after the withdrawal deal is a trade deal with the European Union. PM Johnson had stated he will conclude one by the end of 2020 to bring UK out of Euro zone. If a trade deal cannot be concluded by the end of 2020, PM Johnson is prepared to bring UK out of the EU without a trade deal with the EU. If such a scenario happens, it is likely to weigh on the British pound. Given the short period of 1 year, when a time period of a few years was expected to conclude a trade deal, chances of a no trade deal exit is likely.

UK economic data has not been good recently. Economic activity was weighed down by Brexit uncertainty previously and this has taken a toll on the UK economy and recently data are showing this slowdown trend. Bank of England’s policy maker Gertjan Vlieghe has hinted of a possible rate cut this year. A rate cut by the BOE is likely to send Sterling lower against the US$. In the previous BOE’s meeting last year, while rate was kept unchanged, there were 2 out of 7 BOE’s voting members who had voted for a rate cut.

Strategy

The trend for Sterling would be down. Sell GBP/USD at 1.3070. Stop at 1.3290 and profit target is set at 1.2740. Our 3 months target is 1.2740. Our 6 months target is at 1.2550.

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