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  • GBP/USD rejected at key swing high resistance.
  • BoE member opinions in stark contrast to one another;  can UK economy improve before dove  Haskel gets in?
  • Brexit noise at a standstill  and the Irish border saga continues.

GBP/USD has been unable to crack the descending resistance, spiralling from the Asia highs of 1.3291 down to 1.3206 the European session low with conflicting commentary between the outgoing MPC member Ian McCafferty (hawk) and incoming Jonathan Haskel, (dove) speaking overnight in London.  Currently, cable is trading at 1.3236 and moving sideways as NY consolidates.  

Cable dropped in London trading with Jonathan Haskel’s comments as being perceived to be dovish. He will be replacing Ian McCafferty in September, so that still means that there is a chance that the August meeting’s outcome could be playing into the hands of the bulls if the economic data picks up between now and then and before Haskel enters the MPC.  Last week, the BOE adjusted the threshold bank rate to 1.50% from 2.00% to begin tapering of asset purchases, but that doesn’t mean Agust is a done deal.  

Haskel and McCafferty in stark contrast

Rather dovishley, sending cable lower earlier, Haskel said that the BoE could do more QE if financial markets are dislocated and that there appears to be much more slack in the UK economy than we think and that more slack in economy would weaken case for interest rate rise – He is less worried about the narrow output gap. Finally, he said that the BoE has scope to cut rates slightly lower in case of economic downturn. In stark contrast, McCafferty said that the central bank shouldn’t dally on interest rate increase and that the likelihood that recent downtrend in inflation will slow over the course of the year.

Brexit noise

There is less heat in the marle over Brexit at the moment while talks between the EU and Britain appear to have come to a standstill, as the European Commission spokesman Schinas in Brussels hinted at earlier.  European Union leaders will be meeting over migration later this week and will agree to further tighten their external borders, give more support to Libya and look at creating “disembarkation” centres outside of their territory for people who arrive by sea, as explained in an article in Reuters. However, ahead of the June 28-29 summit, a leaked European Council conclusion warned member states to prepare for a no deal Brexit with EU leaders expressing concern at the lack of progress on the backstop. The leaked document said: “said: “The European Council expresses its concern that no substantial progress has yet been achieved on agreeing on a backstop solution for Ireland and Northern Ireland.”  

In short, the saga continues over the Irish border and Theresa May’s often divided Cabinet is said to be fully unified and committed to the UK’s rejection of the European Commission’s proposed backstop, which would effectively keep Northern Ireland tied to the customs union indefinitely.  

Elsewhere, trade angst continues to play out

The latest snapshot news on the matter is that the US House Speaker Paul Ryan argues against the President and is saying:

  • Tariffs are not the way to go as they are taxes.
  • He argues that other tools should be used.

GBP/USD levels

GBP/USD has been up to test the top of the descending  and widening  channel, testing above the 10-D SMA and just below the psychological 1.33 handle. This is where the swing high from June 15 comes in and is making for an upside resistance 1.32865-1.3300 target level. Daily RSI is flattening out and making for a neutral consolidative outlook and resistance target failures today. On a break of the said resistance, however, the  21-D SMA at 1.3306, if broke, opens a case for 1.3340 double bottom lows ahead of 1.3400 and 1.3470/80. 1.3503 (50-D SMA) comes before the convergence of the 200-D SMA and 1.3583/1.3600 tops come as the upside target while the 1.3708 level at the 50% Fib of 1.3040-1.4377 remains compelling on the wide.  To the downside, on a break of the support line, eyes are on 1.3204 recent lows of 1.3040, as the Nov 3 low.