With the Brexit situation still uncertain and a UK political standoff that is very unlikely to bring a resolution on the relationship with the EU after its departure, GBPUSD had been under new selling pressure in May.
Prime minister resignation
On May 16th, UK’s Prime Minister Theresa May give up on pressure from Conservative Party lawmakers and agreed to provide a timetable next month for her departure, which means the odds of Britain having a new PM by the October 31st EU departure are very high.
The news had a terrible bearish influence on the pound, which had slumped against the US dollar during the month of May, as fears of a Eurosceptic taking the set of Prime Minister had risen. If such a situation will materialize, the already chaotic Brexit uncertainty can aggravate further, which is why market participants are already taking it into account in the pound exchange rate.
Technicals point for more downside
If we look at our chart below, the situation since May 6th is not encouraging at all for buyers. The GBPUSD exchange rate plunged in 9 out of the last 10 trading days, communicating that the underlying order flow is heavily biased towards the sell side.
The pairs trades below the daily 200 moving average, which generally acts as a dividing line between the bearish and bullish territory. Given the impulsiveness of the selling move, we expect the price to continue lower towards the 1.2664 key swing point, which is a low made back in August 2018.
If selling intensifies below that zone, the bearish move could extend further towards the current 2019 low, located around the 1.2375 area. Buyers wanting to rejoin the selling move could wait for a retracement towards 1.2850 or even the moving average, but overall, given that politics will drive the market in the next few months, we expect the pair to remain under pressure.
It will be important to see the guidelines which Theresa May will provide next month, as well as who might have the greatest chances of taking her seat. The current market consensus points out that the October 31st deadline set for the UK to leave the EU might be extended again, given the political uncertainty in the UK. Until there will be an agreement, the economic prospects for Europe will remain low, raising the likelihood of a strong economic slowdown in the next 12 to 18 months.