P.M May to Trigger Article 50
Attention this week will center in PM May's announcement of the beginning of Brexit
GBP/USD advanced for a second week in-a-row , the pair closed at 1.2470. The Pound advanced last week, following the release of higher-than-expected UK inflation figures (the pair was unable to advance above 1.2500 level). Attention this week will center in PM May's announcement of the beginning of Brexit, as the UK government will trigger the art. 50 of the Lisbon treaty this Wednesday. Labour Party will announce its conditions for backing any deal with the EU this Monday and they would only support a deal that has the ‘exact same benefits’ as the single market.
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. The Pound also got a nice boost from the latest BOE's meeting, 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).
Last week Trump announced that his party will probably work on the tax reform now, which partially offset dollar and equities' decline. The Federal Reserve said last 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. The US Central Bank hiked rates as largely anticipated, but retain the stance of a slow pace for upcoming hikes, being far more conservative than expected. The G-20 meeting ended and world leaders were unable to find common ground with the new US administration (this outcome will likely weigh on the USD in short term). Less hawkish Fed monetary policy outlook continues to weigh on the US Dollar and further collaborated to the pair's downward trajectory. Analysts continue to expect economy will expand at moderate pace over next few years in the US.
Politics will be in center focus in the U.K. Prime Minister May expected to trigger Article 50 in the next few days. Analysts expect GBP/USD to fall quickly when the announcement is made but it should recover swiftly as the inevitable finally happens and investors realize that the negotiation process will be long and filled with delays.
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.