May heads to Brussels, Will GBP/USD witness descending broadening wedge breakout?

UK Prime Minister Theresa May will head to Brussels today for her first European summit since she lost her Commons majority in the general election. 

May’s first test

In Brussels, May will address her EU counterparts on her plans for the issue of expats' rights after Brexit. About 3.2 million EU nationals live in the UK.  A Bloomberg report released earlier today, says the plan is widely expected to fall short of the EU’s expectations and could lay bare the division between the EU and the UK.

Failure to find a common ground would jeopardize the UK’s ability to secure a good deal and weigh over the Pound. The details of the plan will be revealed on Monday; however, the Pound is likely to react to sound bites from Brussels. 

Hawkish comments from BoE’s Haldane saw the GBP/USD pair recover from 1.2589 to 1.2710 on Wednesday. But the momentum quickly ran out of steam on account of the uncertainty ahead of May’s Brussels visit. The spot traded around 1.2660 in Asia. 

GBP/USD Technical Levels

The daily chart shows descending expanding wedge, which is a bullish continuation pattern, meaning an upside break would signal continuation of the larger uptrend from the low of 1.2109 (Mar 14 low). The wedge resistance is seen around 1.2930 while support is seen around 1.25 handle. The positive sound bites from Brussels alone may not yield a bullish wedge breakout today, given the heightened domestic political uncertainty in the UK.  On the other hand, a downside break (160 pip move) cannot be ruled out if May’s visit to Brussels ends on a sour note. 

Immediate support is seen at 1.2631 (100-DMA), which, if breached, would open doors for 1.2589 (previous day’s low) and 1.25 (wedge support). On the higher side, breach of resistance at 1.2689 (38.2% Fib R of 1.2109-1.3048) would open up upside towards 1.2797 (4-hour 100-MA) and 1.2864 (4-hour 200-MA).