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Jun 06 - 10:55 PM

GBP/USD - COMMENT-Sterling Range Trades, But A Breakout Is Viable

By Andrew M Spencer  —  Jun 06 - 09:41 PM

The pound is trading in a 1.4080-1.4250 range with a neutral technical setup, but this week's talks between the European Union and United Kingdom will be very important for continued peace in Ireland, post-Brexit relations and hence, potentially pivotal for sterling nL2N2NO092.

The Brexit deal mandates a protocol of checks on some goods moving between mainland Britain and Northern Ireland. From the EU's perspective, the UK has not fully implemented systems for the checks to work efficiently, leading to mistrust nL9N2LG01N.
The UK government believes the EU must be more flexible in the implementation of the Brexit treaty, despite signing the deal after marathon negotiations nL9N2LG01O.

This impasse has far-reaching implications for the broader EU-UK relationship.
A workable Northern Ireland compromise would suggest that other areas of trade, namely financial services for the UK, could also progress.
Stalemate and potential violence in Northern Ireland would be a big setback. As the EU is the major market for UK trade, soured relations would be a strong sterling negative.

GBP/USD is in a 1.4080-1.4250 range with conflicting 5, 10 and 21 daily moving averages, which is a neutral setup.
The 21-day Bollinger bands contract and are tight, at 1.4056 and 1.4231, which often precedes a breakout: this week's EU and British negotiations could be the trigger.

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Source:
Refinitiv IFR Research/Market Commentary

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