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GBP/USD facing an acceleration in bearish momentum – 1.2450, here we come?

May 22, 2019 11:00

Economic events calendar

Source: Economic Events May 22, 2019 - Admiral Markets' Forex Calendar

Yesterday, UK prime minister Theresa May proposed an open vote on a second Brexit referendum, sparking massive backlash from pro-Brexit ministers in the cabinet. As a result, the GBP/USD pushed back towards 1.2800, but dropped back towards 1.2700 soon after.

The reason for this is that market participants have probably lost faith in both May and the Labour Party over the last months, in regards to their leadership concerning Brexit, which can also be clearly seen in current polls - and a possible strong result coming to Nigel Farage's Brexit party in the EU election next Sunday.

Today, Forex traders will be looking closely at two important economic releases from the UK and the US: in the morning, UK inflation will be published, and later the day, the FOMC minutes from the last rate decision will be released.

Technically, after the drop in the GBP/USD below a crucial support point around 1.2780 following the collapse of Brexit talks between May's Tories and the opposition Labour Party last Friday, the currency remains vulnerable to a further drop down to 1.2450.

This is especially true if today's UK inflation numbers come in below expectations of 2.2% (YoY), after the annual inflation rate in the UK was 1.9% in March. Such a reading could trigger a new round of market participants speculating whether a looser monetary policy approach from the BoE may be around the corner, resulting in accelerated selling pressure of the Pound.

And even if inflation numbers come in at or above expectations, a bounce back above 1.2800 may be short-lived, and may find a stronger zone of resistance and potential short-trigger around 1.2870:

GBP/USD daily chart

Source: Admiral Markets MT5 with MT5-SE Add-on GBP/USD Daily chart (between February 20, 2018, to May 21, 2019). Accessed: May 21, 2019, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2014, the value of the GBP/USD fell by 5.9%, in 2015, it fell by 5.4%, in 2016, it fell by 16.3%, in 2017, it increased by 7.4%, in 2018, it fell by 5.6%, meaning that after five years, it was down by 22.9%.

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