16.10.201812:46 Forex Analysis & Reviews: Pound held horses

Over the past few months, the British pound has become accustomed to being thrown into ice, then into fire. After optimistic statements from Brussels and London about the conclusion of an agreement by the October EU summit and the closing of long positions on the US dollar against the background of the correction of US stock indexes in the market, the pair GBP / USD level of 1.35 over the next two or three weeks was actively discussed. Alas, the bad news from the European Union and the stabilization of the S & P 500 exacerbate the risks that such a scenario would have to be put on hold.

Over the weekend, Theresa May was forced to send Brexit secretary Dominic Raab to the main negotiator for the European Union, Michel Barnier, with a message that he could not sign the current version of the agreement. Negotiations lasted about an hour, and a gap down GBP / USD at the opening of the Asian session of Forex testifies to their failure. The questions of the Irish border and the duration of the stay of Albion in the customs union with the EU remain open, and their unresolved position makes the "bulls" in sterling extremely vulnerable. In this regard, it becomes clear why the speculative net shorts for the previous two weeks, which have been declining over the past two weeks, increased by October 9, returning to the highest level since May 2017.

Sterling rightly claims to be the most interesting currency of the week, since, along with the EU summit and political conflicts, it will have to pass a test of a rich economic calendar. Releases of data on the labor market, inflation and retail sales in calm conditions could allow investors to clarify the position of the Bank of England, but they need to keep Brexit in mind. Theoretically, if average wages and inflation will rise (CPI, contrary to BoE forecasts), the chances of continuing the cycle of normalizing monetary policy should also increase. This circumstance, from a fundamental point of view, is able to extend a helping hand to the "bulls" on GBP / USD.

Dynamics of British Inflation and Repo Rates

The confusion in the US stock market adds fog when forecasting the future dynamics of the analyzed pair. Despite positive forecasts of growth in corporate profits in 2018 (+ 23%), estimates for 2019 look significantly worse (+ 10%) and in fact may not be realized due to the fading effect of the fiscal stimulus and the revaluation of the dollar. The same goes for US GDP. Who will guarantee that in the next 3-4 quarters, the indicator will expand by 4% and higher? On the contrary, the slowdown of the US economy under the influence of trade wars and increased borrowing costs reinforce the risks of correction of the S&P 500 and force the dollar fans to close long positions.

The technically necessary condition for the continuation of the GBP / USD rally in the direction of the target by 161.8% using the AB = CD pattern is to keep the pair's quotes above the level of 1.3145 (23.6% of the AD pattern of the Bat pattern). On the contrary, the quotes going beyond the ascending trade channel will increase the risks of continuing the southern hike.

GBP / USD, the daily graph