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The British Pound was once again shedding value against the euro, U.S. dollar and other major currencies on Wednesday, with sentiment concerning Brexit souring once more courtesy of a Telegraph report that the government is abandoning hope for a trade deal with the EU.
The Telegraph reports the Government’s central working assumption is that UK will trade with Europe on World Trade Organisation terms when the transition period ends on December 31.
Senior sources told the newspaper there was currently an assumption that “there won’t be a deal”, although it remains possible that a “basic” agreement may be reached if the EU gives ground in the autumn.
“The likelihood of a no-deal Brexit has increased considerably. For this reason we are forecasting a weak pound in the short term and only a very moderate recovery later in the year. In fact, there is a high risk that the pound will suffer much more severe setbacks in the meantime than our forecasts recommend due to rising Brexit risks,” says Shayne Heffernan, CEO of HEFFX.
The Pound-to-Euro rate has reversed from an attempted recovery and is back below 1.10 at 1.0998. a good portion of the GBP/EUR decline will have its roots in the surging euro which benefited from a EU agreement to pass a €750BN coronavirus rescue fund on Tuesday, a move that brings the EU closer together in both political and fiscal terms.
“Brexit related uncertainties on top of the shock of the covid-19 lockdowns has mean that the market is reluctant to dismiss the likelihood that the BoE might at some point be forced into using negative interest rates,” says Shayne Heffernan, CEO of HEFFX.
“Insofar as the United Kingdom has a current account deficit, in contrast to the other countries that have used a negative rate, it is possible that GBP can be particularly vulnerable during this situation. The combination of a no deal Brexit and negative interest rates could push EUR/GBP towards parity,” adds Shayne Heffernan.
The Pound-to-Dollar rate has meanwhile fallen back from multi-week highs at just under 1.28 to trade at 1.2673 at the time of writing.
EU and UK negotiators are presently locked in discussions that are due to end on Thursday, and we believe any signs of progress might boost the value of Sterling.
However, given the headlines out today, and also the general tone surrounding talks of recent weeks, the possibilities of a breakthrough are slim and as there are no further negotiations scheduled for this month, the UK’s July deadline for the outline of a deal to be agreed can have passed.
To be fair, missing this July deadline was always expected, with the EU’s preferred October deadline being a more likely target markets have chosen to eye.
“We needed to see an agreement this month. It’s clear from the EU side that’s not going to happen,” a source told the Telegraph. “No trade deal has to be the working assumption, because that’s what we have to prepare for. but it doesn’t mean it’s what we wish or are working to make happen.”
Expect levels of tension over Brexit to remain elevated over coming weeks, an environment that Sterling traditionally struggles in.
“Under our central scenario, we currently expect the united kingdom and the EU to reach a ‘bare-bones’ trade deal for goods by end-2020. The GBP is undervalued and oversold, but the weak growth outlook and Brexit uncertainty might keep it close to the lows for most of this year,” says Shayne Heffernan.
The headlines concerning the falling odds of an EU-UK trade deal being agreed come the same day as the ft reports the government’s hopes of reaching a US-UK trade deal ahead of this autumn’s american presidential election have been abandoned, with British officials blaming the Covid-19 pandemic for slow progress.
Johnson and international trade secretary Liz Truss had hoped to conclude a fast-track agreement by late summer, which might be hailed as an early win from leaving the european Union.
But senior government figures told the ft they have concluded no comprehensive deal is feasible before the November poll as the two sides grapple over contentious issues such as whether or not to allow United States agricultural products into the united kingdom market.
“Is it going to happen this year? essentially, no,” one official told the newspaper with another saying, “We don’t want to be bounced into a deal.”
GBP/US Dollar Exchange Rate
Today’s Forex Rates
GBP/US Dollar FX Polls
Overall, the bias in prices is: Upwards.
By the way, prices are vulnerable to a correction towards 1.25.
The projected upper bound is: 1.29.
The projected lower bound is: 1.25.
The projected closing price is: 1.27.
A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 6 white candles and 4 black candles for a net of 2 white candles. During the past 50 bars, there have been 29 white candles and 20 black candles for a net of 9 white candles.
A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 84.8837. This is an overbought reading. However, a signal is not generated until the Oscillator crosses below 80 The last signal was a sell 9 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 64.65. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 30 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 147.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a sell 8 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 13 period(s) ago.
Rex Takasugi – TD Profile
FOREX GBP= closed down -0.001 at 1.272. Volume was 47% below average (neutral) and Bollinger Bands were 39% narrower than normal.
Open High Low Close Volume 1.273 1.275 1.270 1.272 69,031
Technical Outlook Short Term: Overbought Intermediate Term: Bullish Long Term: Bullish
Moving Averages: 10-period 50-period 200-period Close: 1.26 1.25 1.27 Volatility: 7 10 13 Volume: 117,111 132,334 117,770
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
FOREX GBP= is currently 0.2% above its 200-period moving average and is in an upward trend. Volatility is extremely low when compared to the average volatility over the last 10 periods. There is a good possibility that there will be an increase in volatility along with sharp price fluctuations in the near future.
Our volume indicators reflect volume flowing into and out of GBP= at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on GBP= and have had this outlook for the last 1 periods.