30.09.201914:28 Forex Analysis & Reviews: Pound did not wait for resignation

This has the worst week for the British pound since early August after investors began to close long positions on GBP/USD pair because of the Supreme court verdict on the excess of Boris Johnson's powers and the "dovish" comments of the former "hawk" of the BoE monetary policy Committee. Michael Saunders said that even if London and Brussels agree on the terms of the Brexit deal, this does not preclude the possibility of lowering the repo rate. The uncertainty existing in the market for a long time leads to a slowdown in GDP and inflation that can force the regulator to intervene.

Given the Prime Minister's illegality in dissolving the parliament, the general euphoria of the "bulls" has been replaced by disappointment. Johnson did not resign and still insists that Britain leave the EU without a deal after October 31. This statement goes against the legislators' demand for a letter to Brussels asking for a prolongation of the transition period. According to Betfair Exchange, the chances of the resignation of an ardent supporter of Brexit from the post of head of the Cabinet of Ministers decreased from 11/4 to 2/1, which became a catalyst for the GBP/USD pullback. As long as there are risks on Britain's exit from the EU without a divorce, the bulls must be extremely careful.

According to Bloomberg Economics, if Misty Albion follows the path of parliamentary elections and is won by conservatives, the government will receive a mandate for a tough Brexit. In turn, this will lead to a recession.

UK GDP Forecasts

Pressure on the pound creates the rhetoric of representatives of the Bank of England. If yesterday's "hawks" start talking about a rate cut, what do the rest of the MPC members think? Releases of data on business activity, a leading indicator for GDP, can add fuel to the fire. Sluggish economic growth and a slowdown in inflation are strong arguments for a loosening of monetary policy and the exchange rate. Enough that BoE looks like a black sheep when most of the world's leading Central banks are set on monetary expansion.

There is one more event that may be even more significant for sterling than statistics from purchasing managers. This is a conference of the Conservative Party in Manchester, where Johnson must confirm his authority as a leader. To do this after numerous defeats will not be easy. Most likely, one will have to resort to aggressive rhetoric, as a result of which the chances of reaching an agreement with the EU will fall even more. Betfair Exchange rates them as 5/1. At the beginning of the last decade of September, it was about 7/2. On the contrary, the Prime Minister's lack of previous support within the Tories can play into the hands of the pound. With a split within the party, it is not a fact that it will win early elections, which will reduce the likelihood of a disorderly Brexit.

Technically, there is a transformation of the Shark pattern in 5-0 on the daily GBP/USD chart. Pullbacks to 38.2% and 50% of the CD wave are usually used to form long positions. In the case of the pound, you can consider buying when the quotes return to the level of 1.2435.

GBP / USD daily chart