GBP/USD: Tricky Backdrop On Brexit, DXY & Yields Spreads

The appreciation in the Sterling has been far more subdued compared to the Euro. The lack of sufficient demand to take the currency through any structural breaking point seems to be a manifestation of the renewed concerns over Brexit, with a hiatus of a few weeks with no real news. The stand-off between the UK and the EU for the former to get further confessions, alongside PM’s May comments, makes the binary outcome of a No-Deal Brexit (Hard Brexit) or a Brexit Extension look more likely, even if the situation is so fluid that over speculation is not what I am here for. Back to the charts, and it’s through that declining micro and macro slope in the UK-US yield spread that matters, as that’s the market communicating their perception towards a positive Brexit resolution, as things stand at the moment, looks quite bleak. The only residual demand the GBP found was via the broad-based weakness in the DXY as the upward slope in the 25-HMA shows (magenta). The pair is far from presenting conditions to engage in either buying or selling, hence why any involvement may turn out to be a fairly complex affair to determine the next direction. As the red box highlight, the pair has been on a sync sell-side bias phase for quite a few days, with the clear bias terminating the moment the slope in the DXY shifted north. Macro-wise, as long as the 25-HMA doesn’t cross the 125-HMA, there is still credence to be constructive for sell-side campaigns at key liquidity levels.