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  • GBP/USD has settled into a consolidation following a round trip from the pre-Powell lows at 1.2742 to the post-Powell highs up at 1.2849 and back again to 1.2757.
  • Brexit uncertainty is weighing on GBP with the rejection of May’s deal expected on Dec 11th; A liquidation of longs following the 1.2820 break influenced cable to drop to 1.2760 from where the pair has based, edging back to a North American high of 1.2796.

GBP/USD has been good two-way business for the scalpers, but not a trade for the faint-hearted. While the dollar has been stealing some of the limelight this week due to Powell, due to a black-out of Brexit negotiations that we had so gotten used to, yesterday, Carney reignited those flames. Carney was presenting the BoE’s worst case scenario ‘cliff-edge’ Brexit assessment that reminded sleepy bears of the pending risks at stake for the UK economy should the UK crash out of the EU without a deal.  

Carney was making his presentation of the Financial Stability Report and Brexit analyses which, the BoE, argued could lead to an 8% fall in GDP in the short term, unemployment of 7.5%, inflation at 6.5%, house prices down 30% and a 25% fall in the pound if the UK crashes out of the EU without a deal proclaiming that the UK is not fully prepared for a Cliff Edge Brexit and that the UK would need a Brexit transition period.  

The pound was always going to be offered on such headlines eventually, but the bid that followed was fuelled by dollar weakness on the back of Powell’s dovish speech to the Economic Club of New York where he has emphasised that rates are just below the neutral range and that there is no clear rate path. BOE Governor Carney’s direct observation that a hard Brexit could be worse than the global financial crisis for the UK had little impact, initially, while the market brushed that aside as just speculation and unlikely. Instead, traders dealt with the matter at hand where massive re-positioning was taking place across all asset classes in the financial and commodities markets concerning the likey changeup in the Fed’s path of interest rate normalisation.  

However, the Brexit headlines kept on rolling out today in the early European session. Firstly, EU chief Brexit negotiator Michel Barnier’s comments were saying that negotiations on Brexit are over and that this is the only possible deal. Then,  UK PM Theresa May’s statement followed saying that any extension to the Article 50 will reopen the negotiations and that if she fails to get the Brexit deal past parliament, some preparations for leaving the EU without an agreement would be needed to be undertaken. Carney’s sentiment was back on top of sterling and forced cable down to S1 at 1.2753.  

FOMC minutes coming up top of the hour

We are now heading into the FOMC minutes at the top of the hour. However, with all of the recent volatility and with the Xi/Trump summit around the corner and month end, it’s hard to see why an investor would be motivated to take a position and hold it into the weekend. Liquidity might be lighter as a result, which could lead to higher volatility over the minutes, but whatever positives that may come of the minutes for the dollar are likely to be met with bears waiting to pounce considering Powell’s dovish speech yesterday.  

GBP/USD levels

The 1.2660-1.2725 support zone is a line in the sand, spanning the October-November lows – The 2018 base looks set to hold as we move over to the end of the month and The Commons vote on 11th Dec. The 1.2743/1.2847 range is initial support/resistance at this juncture. Moving averages are neutral, but both the 4hr and daily RSI is bearish. Hourly DMIs are less bearish and neutralising into the FOMC minutes.