The GBPUSD maintained its short-term uptrend on Friday ending the day with a 0.35 per cent gain despite the announcement in the European session that the EU will be taking legal actions against the UK for breaching the terms of the previous withdrawal agreement.

The move by the EU to engage in a legal challenge was widely expected yet still triggered a strong response in the GBPUSD before the US session opened on Friday. The likely outcome of this challenge will be a financial penalty on the UK, yet it may still be written off if both sides manage to get back on track towards reaching an agreement. The issue remains the self-imposed deadline by UK PM Boris Johnson who declared months ago that if there is no deal reached by October 15^th both sides should walk away without a deal.

Markets are likely not going to welcome a no-deal with arms open given the high degree of uncertainty it would impose in UK-EU relations. As such and as it currently stands, currency analysts are generally leaning towards a more bearish forecast on the GBPUSD with changes to the prevision highly dependent on progress made in the trade negotiations.

That said on a technical perspective, should the Pound continue to rise against the Dollar as it has in the past sessions, the bearish flag pattern may give way to a bullish reversal. The GBPUSD will have to cross above the 1.30 psychological mark to clear any bearish suspicions in the near term. An encouraging sign for buyers has been that the pair managed to set higher highs and lower lows in the past week in the run up to Friday’s session.

Looking at the downside, the pair’s first tests will be around the short-term MA in red and right below it the 0.786 Fibonacci retracement level at 1.28492. Price action within this channel should determine whether the GBPUSD will be able to hold onto the recent bullish trend. The MACD is just about flashing into the green with the shorter MA crossing above the longer term suggesting further bullish behaviour remains probable.

Overall, the GBPUSD is looking quite shaky at the moment and the weak fundamentals will likely prove determinant in the medium term. We expect higher volatility in the run up to the October 15^th deadline and traders should err on the side of caution. With the dollar likely to pick up further steam in the coming sessions, traders may look to conservatively long the GBPUSD until the 1.2980 mark before shorting the pair for a longer term move lower.

Support & Resistance Levels:

R3       1.31741
R2       1.31000
R1       1.29847
S1        1.28492
S2        1.26766
S3        1.25000

Analysed by: Mr. Thibault Moirez, Independent Analyst