- GBP /USD has been making tracks below the 100-hr SMA at 1.2835 and corrected after yesterday’s doji.
- GBP/USD en-route for the 10-D SMA at 1.2783 as the greenback picks up in its recovery into the 95.60’s in the DXY.
GBP/USD has been correcting the 15th August bull trend where the dollar had been sold-off, stripped of its safe-haven status on optimism in the markets that the US and China were engaging in low-level talks again in what the WSJ reported as plotting a roadmap to resolve their trade dispute by November’s meeting between Trump and Xi. However, for little rhyme nor reason, the dollar has picked up demand again this week from the lows at a touch below the 95 handle (before triggering 94.80 stops) and has rallied again today from 95.15 – there is some entity out there backing up the dollar and shorts have thrown in the towel – for the time being. The Jackson Hole is the next major risk event for the dollar, however, given it might be mistaken to expect Chair Powell or other Federal Reserve officials to use the symposium to shift market expectations about the immediate trajectory of monetary policy and yesterday’s minutes have made it quite clear that the Fed is committed to its path of tightening.
As for the UK data from today, analysts at Scotiabank noted that UK retailers enjoyed a strong August, according to the CBI survey, with the sales volume index rising to +29 (from
+20 in Jul). “Employment in the sector has declined sharply, however, and retailers’ outlook for the coming quarter is weak. The government is releasing a series of papers on the consequences of a “no deal” Brexit which – initially, at least – seem to underscore the negative risks facing the UK in the event of no agreement on “divorce” terms.”
Brexit sentiment
Moreover, the failure for bulls to hold onto gains has fliped attention back to the downside and Brexit risks. Brexit Secretary Dominic Raab has set out what he called “practical and proportionate” advice in case the UK leaves the EU with “no deal”. The BBC reported that Ministers say “a deal is the most likely outcome but the government has published 25 documents of guidance for people and businesses across a variety of areas to try to avoid the “short-term disruption” which it admits is possible if the two sides cannot reach a deal.”
In the event of a no deal, the impact will be felt on Brexit day in March next year, but sentiment between now and then will dictate the value of today’s pound, and currently, uncertainty is a negative input for sterling. The focus is now on issues that are still holding up the withdrawal treaty, such as the so-called “Irish backstop” if a “no deal” is to be avoided.
GBP/USD levels
To the downside, with the pair testing below the 1.2827 Aug 14 high, eyes turn to the Aug 21 low at 1.2794 within this recent 1.3363-1.2662 range, the latter being the prime target. On the flipside, on brekaing the 21-D SMA at 1.12912, analysts at Scotiabank explained that on a clean and sustained break above 1.2920, bulls could enjoy a repeat of the roughly 2% rally in the pound seen over the past week.
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