Two trades to watch: FTSE rises on GBP/USD weakness amid more Brexit woes

Fiona Cincotta December 18, 2020 8:16 AM

With UK PM Boris Johnson once again warning that Brexit talks are in a serious situation, GBP/USD is coming under pressure. The softer tone around sterling is offering support to the FTSE which is trending cautiously higher.

Brexit 2

• Brexit trade deal hopes cool after Boris Johnson warns that talks are in a “serious situation”
• He said that the EU needs to shift its position on fishing substantially
• Talks look set to continue into the weekend with just 2 weeks to go until the end of the transition period.
• GBP/USD is coming under pressure, whilst the weaker pound is boosting the FTSE 100, which is trading mildly higher out-performing its European peers

Can GBP/USD hold above 2019 high 1.3514? 

After a sharp move higher across this week, GBP/USD is trending lower on Friday. It still trades above its 20 and 50 sma on the 4 hour chart and above its ascending trend line which dates back to late September suggesting that there could be some more upside. However, failure to break through resistance at 1.3620 in the previous session points to weakness in the price at that level.

The RSI moved away from the 70 overbought territory late on Thursday but remains in bullish territory and points northwards.

GBP/USD rebounded down off 1.3620 resistance falling to a session low today of 13520. An important support band exists around this level 1.3514/20, the high from 2019. A weekly close above this level would be significant as it plants a strong base for bulls moving forward. Failure to hold this level could see GBP/USD trend back towards 1.35 round number and convergence of 20 sma & horizontal support and then on towards 1.3450 an important level from this week. It would take a break below 1.34 to negate the current bullish trend.

On the flipside should 1.3515/20 hold then a move back to test 1.3620 (high 18 May’18) could open the door to 1.3720 (1st May ’18).

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FTSE finds strength in pound weakness

After trending southwards in a descending channel across June – Oct, the FTSE broke out in November charging steeply higher before hitting an 8 month high of 6645 earlier this month. The positive momentum in the price action has slowed and the price is consolidating around 6545.

The FTSE trades above its 20 & 50 day moving averages suggesting more upside could be had. However, the RSI is providing mixed signals so caution should be had against aggressive bullish bets.

Immediate resistance can be seen at 6645 December high, beyond which 6700 comes into focus, a fresh 8 month high, prior to 6850.

Immediate support can be seen at 6475, the convergence of 20 sma and the lower band of a horizontal channel which has held since early December. A break through here could point to a deeper selloff towards 6300 round number and 6250 (December low) to negate the current bullish trend.

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