News

editorials

GBP/USD in Brexit go-ahead

GBP/USD in Brexit go-ahead

GBP/USD is still in the "SELL" zone

The Federal Reserve said on Wednesday that it would hike the benchmark interest rate by 25 basis points (target range of 0.75% - 1%); a decision that was widely expected. However, the Fed's policy-setting committee did not flag any plan to accelerate the pace of monetary tightening. Although inflation is "close" to the Fed's 2% target, it noted that goal was "symmetric," indicating a possible willingness to allow prices to rise at a slightly faster pace. Analysts continue to expect economy will expand at moderate pace over next few years in the US.

The data from the UK was conflicting for sterling traders with softer wages vs a stronger jobs report. UK data releases were mixed – unemployment fell but average weekly earnings, which the BoE has highlighted as a policy trigger, dropped to +2.2%, from +2.4%. The unemployment rate fell to 4.7% in the three months to January, level last seen in 2005 (positive news for GBP but wages are a real concern for the BoE and should continue to pressure the pound). The Bank of England is having its monetary policy meeting this Thursday, largely expected to remain on hold, albeit weaker wages together with rising inflation, are a worrisome mixture that policymakers can't ignore for long. So far the British Pound has weakened over 10% against the US Dollar (in one year period) and tested its worst levels in more than three decades. Majority of the year-to-date losses were recorded on the day when British voters decided that UK should end its 43 year old association with the European Union (EU).

The UK Parliament officially paved the way for the UK PM May to trigger Article 50 by this month-end

The British Parliament passed the initial Brexit bill without amendments giving the government a free hand in the Brexit process. UK Prime Minister May got the parliamentary approval the courts ruled was necessary to formally trigger Article 50. It is not clear what UK she will lead out the EU. Scotland is beginning the legal proceedings to hold another referendum on independence. There is some talk that Northern Ireland, which voted to remain, might be allowed to rejoin the Republic of Ireland. Once the Art. 50 is triggered, much of the outcome of the negotiations will depend on EU members rather on what PM May wants. My opinion is that sterling is coming back under pressure as the UK looks set to trigger Article 50 but also a new Scottish Independence referendum is now a real possibility.

 

Technical analysis

When we look at the monthly chart of this pair ( 12 years period) we can see strong " bearish" correction. On this monthly chart I marked resistance levels, 1.7000, 1.4300, 1.4000 are long - term resistance levels, 1.3000 also represents strong resistance level. As long the price is below 1.4000 resistance level there is no indication of long trend reversal and this pair is in the "sell" zone ( there could be a short term jump but strong "BUY" signal would be if the price jumps above 1.4000 level).

 

 

On this weekly chart (1 candle is one week period) we can also see that major trend is "bearish", price has dropped from 1.7000 level to 1.1946 level ( this level represents now strong support). On this chart I marked support and resistance levels - 1.2750,1.3000 and 1.3500 represent resistance levels, 1.2000 and 1.1946 represent strong support levels. On this chart I marked trend line and as long the price is below this line there is no indication of trend reversal (The pair is trading below 1.3000 and the bearish momentum remains lively). Breaking above 1.2600 would open way to 1.3000, breaking below 1.2200 would open way to 1.2000.

 

Trade now