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GBPUSD overview

Wednesday, May 15, 2019 2:04 PM GMT

Since the second half of 2018, the factors that moved GBP were gradually shifting away from the UK’s economic performance compared to its trading partners, towards UK’s politics.

On the one hand, markets were factoring the high UK’s inflation (2.7% in August 2018, that would be potentially responded with a rate hike and GBP strengthening) and on the other hand markets were looking at the March 2019 Brexit deadline getting closer with no real deal on the table.

Since September 2018, up until the recent EU’s granting of a flexible Brexit extension deadline that ends on the 31st of October 2019, GBP has been in a roller coaster. The cable was experiencing significant moves fueled by non-anticipated statements from EU’s negotiators, UK’s negotiators, UK’s Members of the Parliament, or UK’s Cabinet members, that some of them have resigned.

Prime Minister May has presented versions of her deal with the EU to the UK Parliament 3 times so far and has survived a confidence vote against her.

Now, May’s deal is set to be voted for a 4th time at the beginning of June. The cross party talks between the Tories and the Labor party, so far are failing to reach any concrete outcome and are still described as “useful and constructive” (terms that are generally used to describe negotiations that do not reach their final goal). The Prime Minister is signaling that if her proposition is rejected for the 4th time, then the UK will face the dilemma of a no deal Brexit or for article 50 to be revoked (i.e. Brexit not happening at all). Meanwhile, the UK is participating in the EU Parliament elections on the 26th of May, and polls are showing that the Nigel Farage’s Brexit Party will gather the most votes.

From the technical analysis’ perspective the GBPUSD pair is ranging at the Weekly and Daily charts. In the shorter time horizon, GBPUSD is currently testing the dotted triangle.

1 Week GBPUSD chart

1 Day GBPUSD chart

Strengths:

  • Upward revision of GDP growth from the BOE (1.2% February’s expectation, 1.5% May’s expectation) coupled with Governor Carney’s comment that “it will require more, and more frequent interest rate increases, than the market currently expects”. His comment is valid, provided that there is a bounce in investments and hiring
  • Unemployment is expected to further fall to 3.5% by 2022.
  • improving macro releases: GDP, retail sales, unemployment, industrial production, construction PMI, Service PMI, wages, trade balance, increasing public sector net borrowing, high street lending, lending to individuals, home prices

 

Weaknesses:

  • polls for the EU elections are presenting the Brexit party of Nigel Farage in the first place
  • property values predicted to fall by 1,25% within 2019, according to the BOE
  • deteriorating macro releases: average earnings, consumer's confidence, current account, M4, Business Investments, Manufacturing PMI, construction output, manufacturing production, industrial order expectations

 

Monetary Meeting:

  • Next Monetary Meeting of the Bank of England is scheduled on 20 June 2019.

 

Disclaimer

The views expressed do not constitute investment or any other advice /recommendation /suggestion and are subject to change. Reliance upon information in this material is at the sole discretion of the reader.Opinions expressed in the report do not represent the opinion of Zulutrade and do not constitute an offer or invitation to anyone to invest or trade.

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