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British Pound: GBP/USD (GBP=X) Brexit Volatility Risk

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British Pound
Ticker: GBP=
Price: $1.3308

British Pound News

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As in most currency markets, the main drivers for the value of the British pound to dollar exchange rate involve macroeconomic data that provide indications as to the overall health of the economies in both countries, such as gross domestic product (GDP) growth rates, inflation, interest rates and trade data.

However, in recent years, one of the key drivers for the pound to dollar trend has been developments in the Brexit negotiations between the UK and the European Union. If the UK leaves without a trade agreement in place the disruption to the trading of goods and services will likely reduce the value of the currency. 

Some analysts have viewed the GBP vs USD forecast as being overly bearish with the pound oversold since the 2016 Brexit referendum, which could result in the currency bouncing up once the uncertainty is resolved.

GBP/USD price analysis: sterling rebounds as dollar weakens

On a year-to-date basis, the GBP vs USD chart is up by 3 per cent, with the rate starting the year at 1.30 and trading at 1.34 in early December. However, the rate dropped by 13 per cent in March when investors sold off assets as the Covid-19 pandemic spread around the world and bought the safe-haven dollar.

The return to a risk-on environment and US interest rate cuts subsequently weakened the dollar. The exchange rate reached 1.34 on September 1 and slipped back to 1.27 later in the month. However, the dollar started to fall against a basket of currencies after the US election, on expectations of additional economic stimulus.

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In December, the focus of the pound against dollar market is the outcome of Brexit negotiations, with key issues remaining unresolved. Analysts at US-based Citibank noted: “Last week sterling appreciated as the expectation of an imminent agreement was expected, however the weekend provided a setback, as differences remain. The price action remains chaotic at times, as the market oscillates to price-in the current news flow.”

The pound to dollar outlook heading into January will depend on news of the deal. What do analysts expect to happen with the exchange rate and what do technical indicators suggest for the key levels to watch in 2021?

With the US dollar broadly expected to weaken under the new US administration, analysts are focused on the performance of the pound against dollar weakness. 

According to a recent note on the GBP/USD outlook, analysts at Citibank believe “a deal is likely to be reached on the future UK/European trade relationship, with downside risks for sterling in the event of a ‘no deal’ scenario. Our view of a deal being reached, has led to a belief that dips in Sterling provide an opportunity to increase allocation.

“The next few days should provide clarity on the UK’s future relationship, with its large trading partner. Sterling has been tracking the broader ‘risk-on’ sentiment, with investors focusing on an environment in 2021 of ultra-loose monetary policy, and the economic recovery as the Covid-19 vaccines begin to be rolled out to the wider population.”

Citibank said in its latest GBP/USD analysis that “there’s no doubt that GBP is cheap based on traditional PPP, which sits around 15 per cent below its long-term average. So arguably, despite the fact that the UK has lagged the G10 complex in terms of economic momentum throughout most of the year, the currency has been reasonably supported by its cheap valuation.”

Citibank has a three-month GBP/USD forecast of 1.32, a six-12 month forecast of 1.37 and a long-term forecast of 1.42.

GBP/US Dollar Exchange Rate

Today’s Forex Rates

GBP/US Dollar FX Polls

Economic Events

Technical Indicators

Overall, the bias in prices is: Upwards.

By the way, prices are vulnerable to a correction towards 1.31.

The projected upper bound is: 1.35.

The projected lower bound is: 1.31.

The projected closing price is: 1.33.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 28 white candles and 22 black candles for a net of 6 white candles.

Momentum Indicators

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.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 37.3590. This is not an overbought or oversold reading. The last signal was a sell 10 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 52.31. 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 82 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 4 period(s) ago.

Rex Takasugi – TD Profile

FOREX GBP= closed up 0.002 at 1.331. Volume was 85% below average (consolidating) and Bollinger Bands were 44% narrower than normal.

Open     High     Low     Close     Volume
1.329    1.332    1.329   1.331     20,379
Technical Outlook
Short Term:        Neutral
Intermediate Term: Bullish
Long Term:         Bullish
Moving Averages: 10-period    50-period    200-period
Close:           1.34         1.32         1.28
Volatility:      9            10           14
Volume:          128,056      146,656      135,266

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.

Summary

FOREX GBP= is currently 4.4% 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 42 periods.

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