19.10.201817:11 Forex Analysis & Reviews: Sterling will remain under pressure

The next failure of negotiations between the UK and the EU on the terms of the country's withdrawal from the union seems to surprise no one, and the British currency and the euro indirectly remain hostages of this phenomenon.

Following the summit of EU and UK leaders, J.C. Juncker stated that he "expects an agreement", but it seems that the negotiating process is less and less "threatening" to reach a compromise in the wake of the remaining real contradictions, which are primarily based on Britain's desire to sit on two chairs. On the one hand, wanting to get preferences from their recent place in the European Union, and at the same time, on the other, while remaining as independent as possible from the decisions taken in Brussels, obliging London to follow a common line of EU member behavior.

The result of the meeting of the leaders of Britain and Continental Europe, as expected by us, had a negative impact on the rate of the British currency, which was under pressure, and, most likely, its decline will continue in the short term. Also, a strong negative for it is the slowdown of inflation, which significantly reduces the prospects for higher interest rates in the near future, as well as a noticeable drop amid the uncertainty about Brexit's retail sales prospects, which was signaled on Thursday.

The volume of retail sales in the UK in September fell more noticeably than expected, by 0.8% against the forecast of a decline of 0.4% and August growth of 0.4%. The core retail sales index also fell sharply by 0.8% against the expected decline of 0.4% and a noticeable increase in August by 0.5%.

Explicit economic problems in the country put pressure on the sterling, which pulls down the single currency rate, since the remaining uncertainty factor in the Brexit issue, though indirect, negatively affects the dynamics of the single currency.

Considering the lack of real prospects for the "amicable" divorce of Britain and the European Union, we believe that the sterling rate will remain under pressure, and the overall negative picture on world markets caused by the trade opposition between Washington and Beijing, the Fed's desire to continue to follow the course of monetary policy normalization is likely to put downward pressure on the GBP / USD pair, which will also weaken the EUR / USD pair.

Forecast of the day:

The currency pair EUR / USD is trading above the level of 1.1445. It can be adjusted upwards to 1.1485. We consider it possible to sell from this mark or after the price crosses the level of 1.1445 with a likely target of 1.1400.

The currency pair GBP / USD is trading above the level of 1.3015. It can also correct up to 1.3045. We believe that it should be sold at about this level with a local target of 1.2950. The same should be done if the price overcomes the 1.3015 mark.