GBP/USD and the Brexit White Paper: more holes in it than the English defence

• Brexit white paper:  more holes than the English World Cup football’s defence yesterday vs Croatia.
• Analysts at Scotiabank explained that the technical outlook for GBP/USD is Bearish.

GBP/USD has been in consolidation since the White Paper was released by the cabinet having rallied from 1.32 the figure to a high of 1.3244, piercing the 50-hr SMA at 1.3234.  

Cable has been tugged and pulled over a number of themes, from Brexit to M&A news and indeed economic US/UK data leading up to the BoE meeting next week. Firstly, the RICS house price index rose and posted a gain of 2, a little firmer than expectations of a -4 outcome;  (broader trend in UK house prices remains very soft). The market’s confidence in the BoE delivering an Aug rate hike can be underpinned by that data though and a 25bps hike is 80% priced in already. The US CPI was a miss m/m and slightly disappointing, sending the dollar lower; (June CPI rose 0.1% m/m, weaker than expected but still taking the y/y rate to 2.9% from 2.8%. Core CPI increased 0.2% m/m). However, analysts at TD Securities argued that the CPI report is more noise than direction for FX markets and said the focus remains on global trade developments, ‘where FX markets appear content in rewarding the USD for now’.  

Brexit white paper: There will be more barriers to UK’s access to EU market post-Brexit

Meanwhile, the White Paper came with little that will appease Brexiteers, (and more holes than the English World Cup football’s defence yesterday vs Croatia), hence the recent resignations and the EU will surely come back with further compromises at which point the Brexiteers will likely start rebelling in droves, throwing further uncertainties into the air and making a troublesome foundation for the BoE and indeed sterling bulls.  Anyway, this all makes for an interesting parliamentary debate next week, which will throw up many of the risks facing PM May’s leadership later this year.  

GBP/USD levels

Analysts at Scotiabank explained that the technical outlook for GBP/USD is Bearish: “Sterling’s failure against the 40-day MA earlier this week leaves the GBP looking prone to a little more softness as losses pick up under 1.32. Intraday trend momentum signals are aligned negatively but the longer run signals are flat (daily) and weekly price action hints at some potential for a broader base to develop. We look for losses to stabilize between 1.3050/1.3150.”