GBP/USD Forecast: The latest Brexit optimism to overshadow BoE policy update

October 31, 2018

GBP/USD Forecast: The latest Brexit optimism to overshadow BoE policy update

The GBP/USD pair staged a goodish rebound on Wednesday and was supported by the incoming positive Brexit headlines. The US ADP report-led dip was quickly bought into and the pair rallied nearly 100-pips, to levels beyond the 1.2800 handle, after details of a letter written by the UK Brexit Secretary Dominic Raab revealed that he expected to reach a deal with the EU by November 21.

The rally started losing steam during the US trading session but again picked up the pace during the Asian session on Thursday after the UK Times newspaper reported that the UK PM Theresa May has sealed a Brexit deal on financial services. The pair surged to one-week tops and now seems to have entered a bullish consolidation phase near mid-1.2800s as investors now look forward to the latest BoE monetary policy update.

The central bank is universally expected to leave benchmark ratesunchanged on Thursday and hence, the key focus will be on the quarterly inflation report (QIR). Apart from the latest forecast, Governor Mark Carney’s post-meeting press conference will play an important role in influencing sentiment surrounding the British Pound. However, anyimmediate reaction to a more dovish outlook for rate increases might turn out to be short-lived and is likely to be overshadowed by the latest Brexit optimism.

Even from a technical perspective, the pair has managed to make it through an important confluence resistance, comprising of a two-week-old descending trend-line and 23.6% Fibonacci retracement level of the 1.3237-1.2694 recent leg of downfall. The mentioned confluence resistance break-point, near the 1.2820 region, now seems to protect the immediate downside and any subsequent slide seems more likely to attract some fresh buying around the 1.2800-1.2780 region.

Meanwhile, the bullish set-up support prospects for an extension of the positive momentum further towards reclaiming the 1.2900 handle, also coinciding with 38.2% Fibonacci retracement level. A follow-through buying has the potential to continue lifting the pair further towards 50% Fibonacci retracement level resistance near the 1.2960-65 region en-route the key 1.30 psychological mark.