08.10.202023:04 Forex Analysis & Reviews: GBP/USD. Friday is an important day for the pound

The pound-dollar pair, like almost all dollar pairs, is traded in a flat, in a fairly narrow price range. The US dollar index is showing weak fluctuations, reflecting a passive state, while the British currency is in anticipation of tomorrow's informational impulses. Firstly, important macroeconomic data will be released on Friday: we will find out the latest data on UK GDP growth, key indicators in the field of manufacturing and production. Secondly, the next round of talks between representatives of London and Brussels will end tomorrow. Plus, you need to take into account the so-called "Friday factor", when traders take profits without risking leaving open positions for the weekend. All this suggests that the last trading day of the week will be marked by increased volatility for the GBP/USD pair.

According to preliminary estimates, macroeconomic reports will put pressure on the pound, as they reflect a slowdown in the recovery process. Thus, the volume of the country's GDP should increase by 4.6% (on a monthly basis) in August. At the same time, this indicator came out at the level of 6.6% in July, and at the level of 8.7% in June. If this indicator comes out at the predicted level, traders are likely to ignore it, but the pound will be under pressure if it is in the red zone. The situation is similar with other economic indicators. For example, the volume of industrial production showed growth in May and June, but then the growth rate began to noticeably decline. For comparison: if at the end of spring this indicator came out at the level of 9.3%, then tomorrow it is expected to be at around 2.6% (in monthly terms). The volume of production in the industry should also show weak growth, rising by only 3.2% (for example, in June it was at 11%).

In other words, all of the above economic indicators will reflect the situation that developed in the UK in August. Let me remind you that the coronavirus began to increase again during that period. They started talking about the return of restrictive measures in early August, and after a week and a half they turned from words to deeds. An outbreak of the infection occurred in a meat processing factory, which is located just a hundred kilometers from the British capital. Authorities were forced to extend the partial quarantines in Leicester and Manchester. Later, an increase in the incidence was noted in other cities of Great Britain, after which quarantine measures were tightened throughout the country. This state of affairs, of course, will be reflected in the August macroeconomic reporting figures.

But here it is worth warning that it is extremely risky to make trading decisions on the GBP/USD pair only on the basis of published releases. The pound's reaction can be deceiving. As mentioned above, the next stage of negotiations between representatives of London and Brussels will end tomorrow. The parties have been discussing the terms of a future trade deal for several months, and according to some reports, they have already reached the home stretch. The topic of Brexit is an unconditional and indisputable priority for the pound - in this case, all other fundamental factors fade into the background. And the GBP/USD pair is no exception: neither the US Nonfarm Payroll report nor other key releases can surpass the significance of Brexit. Such is the specificity of currency pairs with the participation of the British currency.

Therefore, macroeconomic reports should be taken into account tomorrow, but it is advisable to make trade decisions on the pair only after the final statements of the heads of the negotiating delegations (as a rule, they communicate with the press after the completion of the next stage of the negotiation process). These are not final talks - the dialogue will resume in Brussels on Monday. But if the parties announce preliminary optimistic estimates regarding future prospects, then the pound will rapidly gain momentum - regardless of whether macroeconomic indicators will be in the green or red zone tomorrow.

Let me remind you that the fishing issue is currently the most controversial issue of all the remaining ones. London considers the EU's demands to provide access for European fishermen to British fishing areas as unacceptable, calling this incompatible with the UK's status as an independent coastal state. In turn, Brussels insists on the opposite. At the moment, this is the key stumbling block. If the parties even hint at any progress in this matter, then the pound will not only break through the 30th figure against the dollar, but will settle higher in this price area.

And vice versa - if the negotiators disappoint investors with the lack of progress, the GBP/USD pair will move at least to the support level of 1.2850 (the middle line of the Bollinger Bands coinciding with the lower border of the Kumo cloud on the daily chart). In my opinion, the pair will retain its upside potential in any case, so long positions are still a priority, with the first target at 1.3010 (the upper Bollinger Bands line coinciding with the Kijun-sen line). Even if the negotiators do not please traders with optimistic theses tomorrow, the market will still be hoping for a compromise early, especially in light of the next round of negotiations, which will begin next week.