Bears are regaining control after recovery stall; political uncertainty adds to negative tone
Cable stands at the back foot in early Tuesday’s trading after recovery attempts were capped by falling 10SMA / Fibo barrier and subsequent easing resulted in daily close in red and below falling 5SMA that added to negative signals.
Bearish momentum reinforces negative outlook and keeps key supports at 1.26 zone at risk.
Sterling remains heavily weighed by political turmoil in the UK on deep division of leading parties over Brexit that keeps risk of extension of larger downtrend from 1.3381 (2019 high).
Governing Conservatives want to continue to follow through on plans to exit the EU, while opposition Labor Party sees scenario of new election or second Brexit referendum as a way to reunite the country, after both parties were defeated on EU elections.
Brexit saga is expected to remain a main driver of sterling and markets will be closely watching the situation.
Key technical points to be focused are 1.2600 zone on the downside and 1.2716/47 (10SMA / Monday’s high) with break of either side to generate initial direction signal.
Loss of 1.26 support zone would signal bearish continuation and expose target at 1.2479/76 (11/12 Dec double-bottom).
Conversely, sustained break above 10SMA / Mon high would put bears on hold for further recovery, but close above 1.2824 (Fibo 38.2% of 1.3179/1.2605) will be required to signal reversal.
Res: 1.2702; 1.2716; 1.2747; 1.2810
Sup: 1.2662; 1.2647; 1.2605; 1.2580