GPB/USD gained ground on Wednesday and Thursday in last week’s
trading, reversing losses that were produced earlier in the week.
However, the pair failed to sustain the upside momentum and turned lower
on Friday, as the dollar rallied ahead of and following the release of
the December U.S. employment data. GBP/USD ended the day at 1.2282, down 0.52% for the week overall.
The U.S. employment report indicated that U.S. job growth is slowing,
while wages are rising. There was a notable increase in average hourly
earnings growth, year-over-year. At 2.9%, this is the highest rate since
May 2009. This should benefit consumer spending, and will also work to
spark expectations for higher inflation. This, in turn, could increase
the pace of interest rate increases in 2017, a factor that should help
the dollar and, in turn, put pressure on GBP/USD.
Sterling struggled to sustain a gain last week despite the latest
U.K. PMI report indicating improvement in the manufacturing sector. Last
week, the Markit UK PMI manufacturing index strengthened to 56.1 for
December from a revised figure of 53.6 in November, which was originally
reported as 53.4. This was the highest reading for 30 months and well
above consensus forecasts of a slight decline to 53.3. It appears
sterling continues to struggle due to investors’ nervousness regarding
Today, British Prime Minister Theresa May held an interview with Sky
New, her first interview in 2017. Although May has revealed little about
her strategy of pulling out of the European Union, comments made on
Sunday in the interview suggest that exit negotiations will be extremely
painful, according to a report from CNN Money. These comments could put
continued pressure on sterling in Monday’s trading.
GBP: Market Not Re-Engaged In Selling But Short Remains Actionable
The UK's High Court decision on November 3 took some pressure off the
British Pound. But Prime Minister May's speech on Sunday (8 Jan), which
simply restated her plan to trigger Article 50 by March and leave the
EU within two years, has been sufficient to pull the currency down to
the October lows.
moved from 1.229 on Friday's close to 1.216 today. This is a testament
to how vulnerable the Pound is to the repricing of a ‘hard Brexit’
scenario, as well as, in our view, the extent to which periods
of Sterling strength are the result of markets not discounting the new
reality appropriately, a reality that we have fully incorporated into
our outlook for the currency since the referendum in June and that we
have reiterated several times since.
The FX market has not yet re-engaged with selling Sterling. Net
shorts have been reduced (Exhibit 2) and GBP has been one of the few
G10 currencies not to depreciate substantially against the Dollar since
the US elections.
in our view, Sterling is ‘actionable’ and soon set to become even more
‘unfashionable’, despite the recent move lower, as coming political
events will only increase uncertainty on the future relationship between
the UK and the EU. The Supreme Court is due to rule in favour
of the High Court Decision on the need for a Parliamentary vote to
trigger Article 50 by the end of the month. In response, the government
will need to prepare a bill for the vote to take place before the end of
March. This preparatory work, together with a subsequent parliamentary
vote in favour of triggering Article 50, is likely to increase
uncertainty even further. The kind of deal the EU and the UK will agree
on will remain unclear for some time, with the UK government sticking to
PM May's 'red lines' (immigration control and backing away from the
European Court of Justice's jurisdiction) and the EU refusing to grant
the UK participation in the Single Market under these demands. We expect the main economic consequences to be twofold: (i) an
economic slowdown owing to elevated political uncertainty that reduces
investment, employment and consumption as a result of higher prices, and (ii) an adjustment to the UK's external balance requiring a substantial decline in the current account deficit.
GBP/USD Erases Gains, Drops into Negative Territory
has come under selling pressure and is now well off the session high,
trading near 1.2208, down 0.01%. Earlier today, the pair was trading at
1.2258, a gain of 0.41%, after reaching as high as 1.2317.
It has been reported that British Prime Minister May will make a
speech next Tuesday on her approach to Brexit to promote global Britain.
This news may have sent some jitters through the market.
On the downside, support is at the zone defined by the 1.21 level and
the October 7th flash crash low at 1.1950. This zone was tested with
Despite the recent bounce due to dollar weakness, the bias in GBP/USD
remains to the downside, given the ongoing market angst surrounding a
On the upside, resistance is at the January 5/6 highs at the 1.2432
level. At present, this level is expected to remain intact given today’s
failed rally attempt.
During the past week, the British pound initially started off by a
selling off drastically. We reach towards the 1.20 level, which has been
massive support as of late, and then bounced enough to form a hammer.
The hammer is a very bullish sign, and thus I suspect that the buyers
are going to be getting involved. However, this is going to be a very
choppy market going forward, as we could be looking at a potential trend
change. If that’s the case, expect a lot of volatility and don’t get
involved unless of course you can deal with quite a bit of volatility. A
break above the top of the hammer is a sign that the buyers are getting
involved, and a break above the 1.2750 level sends this market much
higher. The 1.20 level is a major level in this pair, so if we break
down below their things change drastically.
However, I believe that the British pound selling off is only going
to be a temporary thing. When I look at a multi-year chart, there is a
massive floor at the 1.15 handle as well as the 1.20 level, so I think
it’s only a matter of time before value investors get involved. The
Federal Reserve is looking to raise interest rates true enough, but the
question remains whether they can. Trend changes are very volatile and
nasty looking things, and that’s probably which are going to see in this
pair. There was a point where the swap alone would be reason enough to
hang onto this type of trade but unfortunately most retail shops are
going to pay you either know swap, or a slightly negative one.
However, I think if you are a longer-term player you can take a shot
on the street, but you must be able to deal with a significant drop if
we do break down below the 1.20 level. This is a multitier trade waiting
to happen, but I don’t know quite yet if were ready. There are a couple
signs on this chart though, one of which is the MACD picking up some
positivity at the same time we have formed what could be a “double
bottom.” I’m keeping my eyes open, and putting a small long position on.
British Pound Plunges to Fresh Lows as May Signals Diamond-Hard-Brexit
The Pound was
smacked down to a new multi-year lows against the Dollar and other major
currencies as Pacific markets opened on Monday 16 January.
The decline was expected.
This weekend we were met with reports from the Sunday Times that Theresa May will make the right to control UK immigration a red line in upcoming Brexit negotiations.
This clashes with the EU's own red line that free movement of labour
is a prerequisite for membership to the EU's single market - and the
question of single market access granted to the UK following Brexit is
what is driving the Pound at present.
According to a report, the UK government's red lines will be an end
to free movement from the EU and the right to hold bilateral trade talks
with other countries, which it is thought will not be achievable while
still in the single market.
Markets now have certainty - the UK is leaving the EU's single market.
While the Prime Minister is intending to attempt to make a positive
persuasive case for the UK leaving a spokesman suggesting that "we are
expecting a market correction" underlines the presumption within
government of the currency trading fresh lows this week.
"When May encouraged GBP negativity back in October she failed to
recognise or attempt to mitigate the impact of the slide, expect much
the same this time, indeed expect an attempt to make a virtue of the
move via benefits to the export sector," says Jeremy Stretch at CIBC Macro Strategy in London.
The job for currency markets now is to find the right price for Sterling to reflect the move.
"Early indications suggest single market access is unlikely to be
retained - a headline which could send GBP sharply lower," says Viraj
Patel at ING in London.
"Hard-Brexit fears plus weaker UK data points to a test of the 1.20
level. Range next week: 1.1840-1.2320, 1 month target: 1.15," says
Patel wrote this prior to the admission that the UK would be setting red lines on migration; they may have to recalibrate.
For analyst David Bloom at HSBC we are now in what can be defined as
“diamond-hard-Brexit” - one in which the UK would completely sever all
links with the continent, including the common market, the EU budget and
free movement of labour.,
The sooner we reach this level then the sooner the recovery can begin.
Note though that downing Street has described the suggestion that the
UK is looking to pull out of the single market as "speculation" with a
source telling Sky News: "The issue of the single market and
the customs union will be answered on Tuesday when the Prime Minister
sets out her negotiations."
Sterling is on track for its best day since the financial crisis in reaction to the Brexit speech delivered today by British Prime Minister Theresa May. The pair is currently trading near 1.2330, up nearly 2.4%.
Britain will leave the EU single market and the Prime Minister
promised a parliamentary vote on Britain’s deal to leave the European
Union and said it would seek to stay a key European partner. May also
stated that she is confident that a positive agreement can be reached
with the EU and that she does not want to undermine the single market or
the European Union.
is now above the $1.2300 level and appears on track for a retest of the
high established January 5th at 1.2432, as the pair has broken solidly
above the 61.8% retracement level of the decline from that high to
Monday’s reaction low.
The steep trajectory of today’s rally has left little in the way of
clear support on the chart should sellers step back in due to the pair’s
now extreme overbought condition on both a daily and intraday basis.
Minor potential support stands at the 1.2117 level, followed by 1.2085.
GBP/USD Faces Profit-Taking Following Tuesday’s Explosive Advance
is subject to profit-taking in today’s session following Tuesday’s gain
of about 3%, the largest one-day gain since at least 1998. GBP/USD
breached the 1.2400 level, with a move to 1.2416 for a high, which
represents a test of the corrective top established January 5/6 as well
as a test of the pair’s 50-day moving average. In today’s trading, the
pair has backed off from Tuesday’s high and is trading at the 1.2309
level, down 0.85% from Tuesday’s North American close.
Sterling was higher in yesterday’s trading ahead of U.K. CPI data
and the rally was boosted by the stronger-than-expected numbers. UK
consumer prices rose 0.5% in December with the year-over-year rate
increasing to 1.6% from 1.2% previously. This was better than estimates
for a rate of 1.4% and represents the highest annual inflation rate
since July 2014. The core inflation rate also increased to 1.6% from
1.4% compared with forecasts of an unchanged reading at 1.4% The RPI
inflation rate came in at 2.5%, up from 2.2% previously.
advance in GBP/USD then accelerated further as British Prime Minister
Theresa May gave her highly anticipated Brexit strategy speech. May
confirmed that she planned to take Britain out of the European Union’s
single market, but included promises to let parliament have a say on the
Brexit deal. May also stated that she is confident that a positive
agreement can be reached with the EU and that she does not want to
undermine the single market or the European Union.
UK data: RICS House Price balance (December): 24% (expected 30%)
House prices on the up in the UK still, but at a, slower rate the previous month.
December result 24%
prior 29%, revised from 30%
The dip is the first for 5 months
Surveyors saying sales weaker
London values fall, other areas higher though
Royal Institution of Chartered Surveyors (RICS) House Price Balance
measures the percentage of surveyors reporting a house price increase in
their designated area. A level above 0.0% indicates more surveyors
reported a rise in prices; below indicates more reported a fall.
UK December Retail Sales Slide 1.9%, Prices Edge Higher
retail sales volumes fell sharply in December with a decline of 1.9%
for December, which dragged the annual increase down to 4.3% from 5.9%
previously as the November increase was revised to show a 0.1% decline
from the original 0.2% gain. The data was sharply weaker than consensus
forecasts of a 0.1% fall for the month and the weakest monthly figure
since April 2012.
Excluding fuel sales, there was a 2.0% decline for the month with the annual increase at 4.9%. On a 3-month basis, sales rose 1.2% with a 5.6% annual increase.
were weak across most sectors, although the biggest decline was in
non-food stores with sales of household goods declining 7.3%. Clothing
sales also fell 3.7%, while food sales were broadly resilient.
monthly data is always erratic and there are huge seasonal adjustment
issues for December given the impact of Christmas sales. The data will,
however, tend to reinforce expectations that there will be an underlying
slowdown in sales growth from unsustainable levels as the growth in
real incomes slows.
British Pound Clings to ’Flash Crash’ Range Ahead of UK/US GDP Report
Fundamental Forecast for the British Pound: Neutral
GBP/USD may continue to face range-bound conditions ahead of the ‘Brexit’ deadline as Prime Minister Theresa May pushes for a clean break from the European Union (EU), but the bearish sentiment surrounding the British Pound may subside over the near-term as the Bank of England (BoE) changes its tune for monetary policy.
Even though the BoE looks poised to retain the highly accommodative policy for the foreseeable future, the recent uptick in the U.K. Consumer Price Index (CPI) may sway central bank officials to adopt a more hawkish tone at the next ‘Super Thursday’ event on February 2, and Governor Mark Carney
may show a greater willingness to gradually move away from the
easing-cycle as he anticipates a ‘notable’ increase in inflation. With
that said, market participants may pay close attention to Governor
Carney next week as the central bank head is scheduled to speak at the
G20 conference in Wiesbaden, Germany, but more of the same rhetoric may
keep GBP/USD within the current range as the Monetary Policy Committee
(MPC) warns ‘policy can respond, in either direction, to changes to the
economic outlook as they unfold to ensure a sustainable return of
inflation to the 2% target.’
Looking at the economic docket for the week ahead, the 4Q Gross
Domestic Product (GDP) reports coming out of the U.K. & U.S. may
generate a buzz as both regions are projected to grow at a slower pace
compared to the previous quarter, but the backward-looking data prints
may do little to alter the range-bound conditions in the pound-dollar
exchange rate amid the diverging paths for monetary policy. Fed Fund
Futures are now pricing a greater than 70% probability for a June
rate-hike as Chair Janet Yellen argues the Federal Open Market Committee
‘closing in’ on its dual mandate, and the pickup in interest-rate
expectations continues to foster a long-term bearish forecast for
GBP/USD as the central bank remains on course for further normalize
monetary policy in 2017.
The British pound bounced off of the 1.20 level underneath to form a
very strong looking candle, engulfing the hammer from the previous week.
If we can break above the 1.25 level above, I believe that the market
will continue to go higher. In the meantime though, it’s probably easier
to deal with this market from a shorter-term perspective rather than
the weekly chart. If we breakdown below the 1.20 level, that would be
catastrophic. Regardless, I think you can count on seen quite a bit of
volatility in this market.
Last week was a quite a ride for GBP/USD.
The week kicked off in Asia with a rare event in the FX market – a gap
to the downside. The sharp drop lower in GBP/USD was sparked by reports
last weekend indicating that during the planned speech by British Prime
Minister Theresa May, which took place January 17th, she would lay out
plans for a “hard” Brexit and that she was willing to quit the European
Union’s single market to regain control of Britain’s borders. The news
resulted in sharply lower open in Asian trading Monday and a test of the
October 7th “flash crash” low at 1.1905, with GBP/USD falling to 1.1986
for a low.
However, fears were eased when May took to the podium
last Tuesday, as the Prime Minister stated Britain will leave the EU
single market and promised a parliamentary vote on Britain’s deal to
leave the European Union and said it would seek to stay a key European
partner. May also stated that she is confident that a positive agreement
can be reached with the EU and that she does not want to undermine the
single market or the European Union.
This was perceived as
positive for sterling, which was already trading above Monday’s levels
ahead of May’s speech. The move to the upside in GBP/USD accelerated on
May’s comments, with the pair rising approximately 3%, the largest climb
ever in the dealing data – which goes back to 1998 – according to a
report from Thomson Reuters. Sterling also gained more than 2 percent
against the euro, with dealers reporting a widespread squeeze on short
positions taken in derivatives markets.
Tuesday’s advance lifted
GBP/USD to test the highs established on January 5/6 at 1.2430/1.2433
and price action has been capped at that level since.
Wednesday, GBP/USD pulled back in reaction to the extreme overbought
condition that resulted from Tuesday’s massive rally. Support was found
at 1.2254 and that level provided a floor for the pair on both Thursday