empty
 
 
You are about to leave
www.instaforex.eu >
a website operated by
INSTANT TRADING EU LTD
Open Account

06.07.202013:27 Forex Analysis & Reviews: The pound uses a buffer

Long-term review
This information is provided to retail and professional clients as part of marketing communication. It does not contain and should not be construed as containing investment advice or investment recommendation or an offer or solicitation to engage in any transaction or strategy in financial instruments. Past performance is not a guarantee or prediction of future performance. Instant Trading EU Ltd. makes no representation and assumes no liability as to the accuracy or completeness of the information provided, or any loss arising from any investment based on analysis, forecast or other information provided by an employee of the Company or otherwise. Full disclaimer is available here.

The resumption of Brexit negotiations is an important reason to look at the British pound. London and Brussels accused each other of missing the deadline for assessing access to financial services markets, and banks in the Foggy Albion warned that this could end badly: if the principle of equivalence, which the EU insists on, is not met, European customers will be forced to leave London. This process may take several months, so fresh decisions on Brexit are needed right now. More precisely, until the end of July. And if they are obtained, sterling can spread its wings.

Gloomy forecasts for a deeper recession in Britain compared to other countries of the Old World, the risks of the introduction of negative interest rates by the Bank of England, as well as the impasse in Brexit negotiations, do not allow the pound to continue its northern March. At the same time, the "bulls" for GBP/USD are drawing strength from the epic rally of the US stock market. Sterling's volatility remains elevated compared to other G10 currencies, which makes it more responsive to changes in global risk appetite. In this regard, the growth of the S&P 500 is a kind of buffer for the "bulls" on the analyzed pair.

Dynamics of the S&P 500 and GBP/USD

Exchange Rates 06.07.2020 analysis

This is not to say that everything is hopeless in other areas. Yes, the death rate from COVID-19 in the Foggy Albion is higher than in other European countries, and Andrew Bailey in June sent a letter to banks that the transition to negative rates will be a serious shock, as it will have to update computer programs, rewrite contracts and communicate with customers in a new way, however, at the beginning of July, much has changed. Representatives of the Bank of England, led by chief economist Andy Haldane, who voted against extending QE by £100 billion at the last MPC meeting, are increasingly talking about a faster recovery in GDP compared to forecasts. If this happens, additional monetary incentives, including a drop in the repo rate below zero, will not be required.

Yes, EU chief negotiator Michel Barnier claims that the parties have serious differences of views, and Angela Merkel said that the EU should prepare for the worst-case scenario, however, British Prime Minister Boris Johnson is optimistic about the conclusion of an agreement, and David Frost called the talks "comprehensive and useful". The same Barnier no longer insists that the European Court of Justice is the truth of last resort, and MUFG Bank claims that if the good news on Brexit begins to arrive before July 31, the pound will rush north.

In my opinion, only a serious increase in mortality from COVID-19 can frighten investors and provoke a deep correction of the S&P 500. The stability of the US stock index faithfully serves as the GBP/USD, and its further growth, together with the positive Brexit, will contribute to the pair's purchases on breakouts of resistance at 1.254 and 1.26 in the direction of the target on the AB=CD pattern near 1.3. Technically, this strategy is confirmed in the implementation of the price action expanding wedge model.

GBP/USD, the daily chart

Exchange Rates 06.07.2020 analysis

Marek Petkovich
Analytical expert of InstaForex
© 2007-2024

Open trading account

InstaForex analytical reviews will make you fully aware of market trends! Being an InstaForex client, you are provided with a large number of free services for efficient trading.




You are now leaving www.instaforex.eu, a website operated by INSTANT TRADING EU LTD
Can't speak right now?
Ask your question in the chat.

Turn "Do Not Track" off