GBP/USD - Eyes bull hammer reversal, focus on PM May speech

• Cable created a bullish hammer yesterday.
• Positive follow-through today would confirm bull reversal.
• Limited upside scope due to Brexit uncertainty, trade wars and risk aversion.
• PM May to ‘disappoint’ with lack of detail in key Brexit speech.

The GBP/USD pair created a bullish hammer candle on the daily chart, but only at NY close above the ascending 50-day moving average (MA) of 1.3830 would confirm a bullish reversal.

However, the big gains are ruled out as the UK is a current account deficit country and hence the Pound is extremely vulnerable to rising odds of an all out global trade war and the resulting risk aversion in the equities.

Further, CNBC report says the analysts believe PM May (during her speech later today) will fail to provide enough detail to please the EU, potentially setting negotiations on a collision course. The longer the UK government remains in brexit deadlock, the tougher it becomes for the Bank of England (BOE) to tighten the policy. Thus, GBP bulls face an uphill task.

As of writing, the spot is mildly bid around 1.3786 and could remain flat lined ahead of PM May's speech. BOE's Governor Carney is also scheduled to speak, but will focus on the evolution of money and the emergence of cryptocurrencies and hence is less relevant for Pound. 

GBP/USD Technical Levels

The pair suffered a downside break of the symmetrical triangle earlier this week. The ascending trendline (drawn from the Nov. 13 low and Dec. 26 low) support has been breached as well.

FXStreet Chief Analyst Valeria Bednarik writes, "technically, the pair has barely corrected extreme conditions, but remains biased lower, at risk of breaking lower, as in the 4 hours chart, the 20 SMA maintains its strong bearish slope above the current level, while technical indicators remain at overbought levels, barely up from their daily lows."

Support levels: 1.3765 1.3730 1.3700

Resistance levels: 1.3915 1.3950 1.3990