**GBP/USD: Brexit-Fuelled Rise at Risk to Long Bets, Resistance**
*By Justin McQueen, IG Group*
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The British pound has experienced a robust rally against the US dollar in recent weeks, spurred by improved sentiment surrounding Brexit negotiations and a generally weaker greenback. However, the momentum appears to be losing steam as key resistance levels and profit-taking by long-position holders put the recent gains at risk. This analysis explores the technical and fundamental landscape influencing GBP/USD, outlining the key factors that traders must watch in the evolving environment.
## Brexit Progress Supports Sterling
Brexit headlines have played a pivotal role in driving GBP/USD price action. As political actors in the UK and European Union inch closer to a potential deal, optimism surrounding a less catastrophic outcome than a no-deal Brexit has prompted market participants to buy the pound, unwinding a portion of the significant pessimism that had built up in prior months.
**Key fundamental tailwinds for GBP/USD:**
– Growing indications that the UK government is favoring a negotiated Brexit solution over a hard or no-deal departure.
– Diminished odds of an imminent general election or another extension of the Article 50 process, which had created heightened political risk.
– Moderation in some Brexit hardliner rhetoric, giving markets hope for a pragmatic compromise.
The psychological relief is palpable in the rally; however, the durability of these gains remains questioned given the event risk still embedded in ongoing negotiations.
## US Dollar Weakness Also a Tailwind
Compounding sterling’s strength has been broad-based US dollar softness. The Federal Reserve’s dovish tilt and signals from global central banks have lessened the greenback’s relative yield advantage. As a result, capital flows favored perceived riskier currencies, including sterling.
**Dollar-specific factors at play:**
– Expectations of further Federal Reserve rate cuts in response to global trade tensions and weak data releases.
– Correction of “overbought” US dollar positioning after a strong run in the first half of the year.
– Improvement in other developed market currencies, such as the euro and yen, reducing USD haven demand.
Combined, these fundamental trends set the stage for GBP/USD’s rapid ascent; yet, traders must be alert to technical and sentiment barriers looming overhead.
## Technical Analysis: Key Resistance at Hand
From a technical perspective, GBP/USD recently challenged resistance levels that have capped rallies throughout 2019 and late 2018. The move has been brisk, with the pair climbing from below 1.2100 to just shy of 1.2300 at the time of writing. A look at the daily chart reveals several hurdles that raise red flags for bulls contemplating fresh longs.
**Technical resistance levels to watch:**
– 1.2305–1.2350: A cluster of prior swing highs, as well as the 100-day moving average, which has consistently offered stern resistance during corrective rallies this year.
– 1.2380: Former support from April and May, now acting as resistance.
– 1.2410–1.2430: The 200-day moving average and a multi-month descending trendline. A break above this area would signal the start of a more sustained reversal.
**Momentum and volume indicators:**
– Relative Strength Index (RSI) approaching overbought territory, warning of possible exhaustion in the current move.
– Declining volume accompanying the latest push higher, suggesting buyer conviction may be waning.
– Bearish divergence appearing in some short-term oscillators, hinting that upward momentum is stalling.
Traders should closely monitor these resistance zones, as failure to surmount them convincingly could entice profit-taking and spark a near-term reversal.
## Sentiment and Positioning: Long Bets Increasingly Crowded
Commitments of Traders (COT) and retail brokerage data reveal a shift in market positioning that could threaten the longevity of recent gains.
**Key points on positioning:**
– Net shorts on the pound, which reached
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