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Brexit Deal Relief Rally to Fade

The GBP/USD also reacted to several important economic numbers from the United States. 

  • Sell the GBP/USD pair and set a take-profit at 1.1980.
  • Add a stop-loss at 1.2150.
  • Timeline: 1 day.
  • Set a buy-stop at 1.2085 and a take-profit at 1.2200.
  • Add a stop-loss at 1.1985.

The GBP/USD price made a bullish engulfing pattern after the latest progress on Brexit. It rose to a high of 1.2055, which was higher than this month’s low of 1.1926. The pair remains ~3.16% below the highest point in February.

The UK and the European Union reached a new deal that will govern relations between Northern Ireland and the European Union. In a statement, Rishi Sunak and Ursula von der Leyen said that the deal was a decisive breakthrough.

As part of the agreement, there will be no red and green lanes for goods moving into Northern Ireland. Also, it will stop some EU laws on goods even as some EU law will remain intact in some areas. Still, some parts of the deal will need to go through the European Court of Justice. Also, UK’s parliament will need to pass it. The GBP/USD pair rose because there are signs that Sunak will get the necessary votes.

The GBP/USD also reacted to several important economic numbers from the United States. Housing figures published on Monday showed that pending home sales rose at the fastest pace since 2020, in a sign that the sector is still resilient. It increased by 8.1%, which was higher than what analysts were expecting.

Further data revealed that core durable goods orders dropped by 4.5% in January after rising by 5.1% in the previous month. That decline was deeper than the median estimate of a -4.0% drop.

The main data to watch on Tuesday will be the latest US consumer confidence figure by the Conference Board. This is an important figure since consumer spending is the biggest part of the American economy. Analysts expect that confidence rose slightly to 108.50.

The GBP/USD pair formed a small bullish engulfing pattern on the four-hour chart. In price action analysis, this is usually one of the most accurate bullish patterns. It has moved slightly above the 25-period moving average. The pair also flipped the resistance at 1.1988 into support.

Most importantly, it has formed what looks like a head and shoulders pattern. Therefore, the pair will likely retreat on Tuesday as the enthusiasm surrounding Brexit wanes. This pullback could see it retest the support at 1.1988. A move above the resistance point at 1.2150 will invalidate the bearish outlook.


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