HomeContributorsFundamental AnalysisPound Drops, As Political Crisis In The UK Deepens

Pound Drops, As Political Crisis In The UK Deepens

The pound weakened against the USD yesterday and during today’s Asian session as the political crisis in the UK deepened further. The sterling dropped considerably on Monday as media reported that Boris Johnson summoned his ministers for an emergency meeting, strengthening arguments for possible elections. Analysts tens to note that the UK PM could be calling for elections, should the UK Parliament vote to delay Brexit. It should be noted that in the case of a snap election, Boris Johnson threatened not to include rebel Tory members of Parliament, increasing the stakes. Analysts point out that the pound may have priced in only partially the possibility of a hard Brexit and such a scenario could weaken the pound further. On the other hand, in the UK Parliament a cross party group hopes to introduce a law which could delay Brexit. It remains uncertain though if the government will not be able to find a way to circumvent such a law. We expect the pound to remain under pressure as political uncertainty rises. Cable dropped yesterday breaking the 1.2135 (R2) support line (now turned to resistance) and during today’s Asian session broke the 1.2050 (R1) support line, also now turned to resistance. We maintain a bearish outlook for the pair as the pair seems to have a steady bearish sentiment guiding it and the drop steepened yesterday. Should the bears maintain control over the pair’s direction, we could see it breaking the 1.1950 (S1) support line and aim for lower grounds. Should the bulls take over, we could see the pair breaking the 1.2050 (R1) resistance line and aim for the 1.2135 (R2) resistance level.

EUR weakens on dark economic outlook

The EUR hit a 27-month low against the USD, as the economic prospects of the area do not seem to be shining. Analysts tend to note that the area has been hit hard by the ongoing US-Sino tensions and the slowdown of China. Especially after imposing new tariffs by the US on imports from China, investors fear the repercussions are to be even harder for the euro area. It should be noted that the increased possibility of a hard Brexit also seems weigh on the single currency. The negative developments seem to swing investor sentiment for a possible rate cut by the ECB in its next meeting. We could see the EUR weaken further should investor sentiment continue to be influenced by the dark prospects ahead for the EUR. EUR/USD dropped yesterday and during today’s Asian session, broke the 1.0950 (R1) support line (now turned to resistance. We could see the bearish sentiment continue to dominate the pair as the downward trendline seems to continue to dictate the pair’s direction. Should he pair remain under the selling interest of the market, we could see it breaking the 1.0910 (S1) support line, aiming for lower grounds. Should the pair’s long positions be favoured by the market, we could see it breaking the 1.0950 (R1) and aim for the 1.1000 (R2) resistance level.

Other economic highlights today and early tomorrow

Today during the European session we get Turkey’s CPI rate for August and UK’s construction PMI for August as well. In the American session, we get from the US the ISM manufacturing PMI for August. During tomorrow’s Asian session, we get Australia’s GDP growth rate for Q2 and from China the Caixin services PMI for August. As for speakers please note that ECB’s Andrea Enria, Boston Fed President Eric Rosengren and BoJ Governor Kuroda are scheduled to speak.

GBP/USD H4

Support: 1.1950 (S1), 1.1865 (S2), 1.1790 (S3)
Resistance: 1.2050 (R1), 1.2135 (R2), 1.2210 (R3)

EUR/USD H4

Support: 1.0910 (S1), 1.0865 (S2), 1.820 (S3)
Resistance: 1.0950 (R1), 1.1000 (R2), 1.1050 (R3)

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