Long Awaited Bull Flag Breakout

Following our last week’s report on GBP/USD, the pair was previously still testing near the top-level of its bullish flag. This week, market sentiment provided the catalyst needed for the pair to breakout above its bull flag and resistance zone near 1.3000. The current price action reached a 7-month high while testing the resistance level from May near 1.3280.

In terms of MACD, now tilted towards the bullish zone with a golden cross formation, suggests the pair further its upward momentum after a breakout confirmation above its 1.3280 resistance. In terms of EMA, the 18EMA previously rejected the downward pressure for the pair, where we can expect a target for a likely retracement.

From the fundamental point of view, current opinion polls for the past few days put UK PM Boris Johnson’s Conservative Party (Tories) ahead of opposition Jeremy Corbyn’s Labour Party by a margin of between 9 and 12 points, where under normal circumstances, it would guarantee a majority in the House of Commons for the Tories. With just less than two weeks to go until the election takes place on December 12, investors are now betting on the Conservative Party to win the election, with Johnson making history as the PM to deliver Brexit. 

Recent optimism led investors to dive into the pound market, allowing the pound to climb higher against the euro to a 2-year high as well. However, pessimistic investors still fear a comeback by the Labours, which would then lead to a hung Parliament and also jeopardizing a smooth Brexit before the January 31 deadline. Furthermore, as per last week’s discussions, there are still concerns about the UK’s economy during the transition period and also trade terms with the EU counterparts after Brexit.