The British pound/U.S. dollar (GBP/USD) currency pair initially rose in the immediate aftermath of the Supreme Court’s decision that the parliament must hold a vote on Brexit. This was a predicable outcome. However, sterling then fell sharply as traders responded to news of additional ruling that the UK’s devolved assemblies will not have a vote on Brexit. But just as quickly, the currency then recovered most of its losses to trade near $1.25 again at the time of this writing.
The long and short of it is that the Supreme Court’s ruling will hand lawmakers a chance to soften the government’s plan on leaving the European Union, but that legislatures in Scotland and Northern Ireland won’t get to vote on the Article 50 process. So, in a way it does raise the prospects of it being a "soft" exit from the European Union rather than a ‘hard’ one, but there is no way of knowing exactly how soft or indeed hard just yet. Nevertheless, in theory this should be net positive for the pound and UK stocks.
But as mentioned last week, I do believe that the GBP/USD may have carved out a bottom for the time being. Most the pound-negative news may already be baked in the price. Also, with incoming UK data generally pointing to higher inflation and growth rates, the impact of the Brexit vote has so far been positive if anything. Market participants may therefore find it difficult to justify initiating new sell positions on the currency at these already-depressed levels.
From a technical perspective, the cable may be able to climb back towards 1.30s again now that it has created a higher high above the old resistance level of 1.2415. So there has been a break in market structure, which increases the likelihood that it may have created a major double bottom reversal pattern around the psychologically-important 1.20 handle. The next level of resistance that the GBP/USD will be facing is at 1.2565, the low from the last daily green candle prior to the down move. Above here, there is little further resistance seen until the 1.2770-1.2800 area (shaded in red on the chart).
My bullish outlook on the GBP/USD would become weak if the sellers now manage to reclaim the broken resistance level at 1.2415. If so, this may pave the way for a drop towards the next support levels at 1.2265 or even 1.2175. Meanwhile if the cable creates a new low below the 1.20 handle then the bullish view would become completely valid.
Source: eSignal and FOREX.com