12.09.201817:03 Forex Analysis & Reviews: Brexit is the chief aide or the enemy of the pound? Traders take a break before the meetings of the Bank of England and the ECB

The euro and the pound declined on Tuesday against the US dollar before the central banks' meetings, which are scheduled for tomorrow.

Eurozone

The euro is not in demand amid the worsening of relations between the US and the EU after a failed meeting of representatives on trade issues. The British pound is still tumbling from side to side amid conversations and rumors about Brexit and reaching an agreement. Rumors remain rumors that make speculators fix their profits on growth, thereby discouraging potential large investors from the market, which are less emotional in this regard.

Most likely, at tomorrow's meeting, the president of the European Central Bank, Mario Draghi, will try to clarify the future prospects of monetary policy, but is unlikely to specify a specific time frame, again referring to the spring of 2019. All attention will be focused on the press conference, as, no doubt, the ECB will leave interest rates unchanged. Keeping a softer rhetoric can push the European currency down against the US dollar in the short term, and we will see an update of the lows in the EUR / USD currency pair.

Forecast for EUR

As for the technical picture of this trading instrument, the bears will put pressure on the euro, which will lead to the renewal of the intermediate support level of 1.1550, and then to the test of the week's lows around 1.1530. As I noted above, a more powerful downward impulse, capable of a breakdown of 1.1530 support, can be formed only following the results of tomorrow's press conference from the ECB.

As for the fundamental statistics, yesterday in the second half of the day, there was a report on inventories in the US wholesale trade, which grew. According to the Ministry of Trade, the growth in inventories was 0.6% in July this year compared with the previous month. Economists had expected that the figure would also grow by 0.6%. Compared to the same period of the previous year, wholesale sales increased by 9.8%, while the inventory / sales ratio dropped to 1.26 from 1.32 a year earlier.

The United Kingdom

As I noted above, the British pound was unable to keep its positions after the release of a good report on the labor market and wages.

Let me remind you that wages in the UK increased from May to July by 2.9% compared to the same period of the previous year, after an average increase of 2.7% between April and June. This will have a positive impact on consumer spending and will support economic growth in the future. A healthy labor market will also allow the Bank of England to continue raising interest rates, which is expected by a number of investors who are betting on the growth of the British pound in the medium term.

However, the growth potential of the pound is limited by the news of the extension of the term of office to former Bank of England Governor Mark Carney. At this post Carney will be until January 2020.

The main source of both the growth of the pound and the pressure on it are various kinds of messages on Brexit, as well as the uncertainty that continues to exist. The recent statements by the chief negotiator from the EU Michel Barnier that the Brexit deal could be reached in 6-8 weeks provided only temporary support to the pound. However, in the absence of confirmation of this statement, the British currency fell again.

Forecast for GBP

As for the technical picture of the GBP / USD currency pair, while the trade will be below the resistance level of 1.3020, the pressure on the pair will continue, and the absence of Brexit news will lead to a larger downward correction in the support area of 1.2940, from which new buyers will try to build a further upward trend in the pound.