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GBP/USD is approaching two-month rising trendline on Brexit impasse

  • GBP/USD is closing on trendline connecting the Aug. 15 low and Oct. 4 low. A close below that would embolden the bears.
  • The Brexit impasse is hurting the British Pound. The UK Prime Minister May will likely have a tough time selling an extension to the Brexit transition period at home.
The GBP/USD pair fell to 1.3015 and could further to key trendline support today on the Brexit impasse.

At press time, the currency pair is trading at 1.3021 and the support of the trendline connecting the Aug. 15 low and Oct. 4 low is located at 1.30. Interestingly, 1.30 is also the 76.4 percent Fib retracement level of the rally from 1.2921/1.3258.

UK's Theresa May signaled yesterday that she would consider extending the transition to allow more time for UK and EU negotiators to solve problems around key issues like the Irish border. Further, the European Commission's Jean-Claude Juncker said that any request for an extension to the Brexit transition period by the UK would be considered "positively" and likely be accepted.

Still, the Pound struggled to pick up a bid in Asia as markets believe that Theresa May will have a hard time selling the extension at home. Moreover, as Reuters report says, May's strategy is being criticized by both sides - Brexit supporters accuse her of making Britain a vassal state while the EU supporters say the offer is the worst of all worlds.

As a result, a bounce, if any, in the GBP/USD, will likely be short-lived. Should the pair close below 1.30,  a deeper sell-off to 1.2905 (61.8% Fib R of Aug. 15 low/Sept. 20 high) could be in the offing.

Technical Levels

Resistance: 1.3084 (50-hour EMA), 1.31 (10-day EMA), 1.3147 (100-day EMA)
Support: 1.30 (trendline + 76.4% Fib), 1.2921 (Oct. 4 low), 1.29 (psychological support)