British Pound: USD/GBP (GBP=X) Finds Relief
The British Pound started the week on a positive footing against both the euro and dollar, with the GBP/USD at its highest daily opening since March 12 and also the GBP/EUR exchange rate recording its highest daily opening since May 15.
The gains in Sterling come amidst an ongoing improvement in global market sentiment also as the evaporation of Brexit trade negotiation anxieties as the EU and United Kingdom have just about conceded that there are no looming hard deadlines for negotiations and they will probably run all the way through until year-end.
The Pound has now rallied for six days in succession against the U.S. Dollar, with the Pound-to-Dollar exchange rate trading at 1.2698 at the time of writing, levels last seen on March 12.
Despite Brexit trade negotiations ending in stalemate last week, the Pound-to-Euro exchange rate has rallied back to 1.1250, having started the new week at one.1230, its best daily open since May 15.
The Pound lost value through the course of May, falling against most major currencies, as investors grew more and more cautious that talks would fail in June as a key European Council summit falls on June 19, while the United Kingdom faces a month-end deadline to request an extension for the negotiation period.
Foreign exchange options markets showed that traders were becoming increasingly worried that June would offer a negative outcome for Sterling as the cost of insuring against an enormous fall in the value of the currency had risen sharply, notably towards mid-month.
However, this concern seems to have been the result of a synthetic deadline that never really existed and the market will probably unwind some of its negativity which might prompt further gains.
Following the just-concluded round of talks, United Kingdom Chief negotiator David Frost said in a statement, “progress remains limited however our talks are positive in tone. Negotiations will continue and we stay committed to a successful outcome.
Frost says the United Kingdom is talking to the European Commission regarding setting up face-to-face talks in order to create a breakthrough. “We are willing to work arduous to see whether at least the outline of a balanced agreement, covering all issues, may be reached soon,” said Frost.
Meanwhile, United Kingdom Prime Minister Boris Johnson is anticipated to meet the European Commission President Ursula von der Leyen at some point in June to try and inject some political momentum into talks, confirming that that not only is effort being made by both sides to reach a deal, but there’s the required flexibility on timelines required to attain success.
Markets were apparently too pessimistic on Sterling heading into June and a clearer view of the state of play is permitting some of that negativity towards the UK currency to evaporate.
Last week it had been said by a German official that EU leaders will intervene in Brexit trade negotiations in autumn, with the aim of sealing a compromise deal at a summit on 15 October.
Michael Clauss, Germany’s ambassador in Brussels, said there had been “no real progress” in the talks to date but expected they would become the EU’s main political focus in September and October.
Germany will assume the rolling presidency of the EU in the last half of the year and will be key in generating the momentum needed on the EU side for negotiations to end in success.
“Is a deal possible? yes, definitely. however I feel it also means that United Kingdom has to have a more realistic approach,” Clauss told an audience of the European Policy Centre. “To put in short, I think you cannot have a full sovereignty and, at the same time, full access to the internal market. So this Brexit issue is going to absorb plenty of political or most of the political attention we expect in September and October.”
The question of Brexit has taken a backseat position across European capitals which are almost completely focusses on fighting the coronavirus pandemic, that the UK believes is a major reason why the just-ended round of talks have stalled.
The EU and United Kingdom disagree on issues concerning fishing rights, so-called level playing field rules and governance.
The EU’s Chief negotiator Michel Barnier had on Friday confirmed what foreign exchange markets were expecting: that the EU and United Kingdom still remain too far apart to strike a post-Brexit trade deal.
Barnier delivered a press briefing following the conclusion of the previous week’s negotiations – the last before the end-June deadline by which an extension should be agreed – saying there had not been significant progress on fisheries, level playing field provisions, governance, and police & judicial cooperation.
“On all these points, we are requesting nothing more than respect of the Political Declaration,” said Barnier. “We should keep on with our commitments if we want to move forward! in all areas, the United Kingdom continues to backtrack on the commitments it has undertaken in the Political Declaration.”
However, the United Kingdom says the EU is requesting way more sacrifices on sovereignty than is the case with already-struck free trade deals, for example with Canada and South Korea.
“As to our demands being unreasonable, these are our demands. No qualification United Kingdom will put to them can change our demands. We want to seek out space for compromise loyal to mandate of EU – that’s the challenge that lies ahead of us,” Stefaan de Rynck, advisor to Michel Barnier, told and Institute for government event in may.
“It’s a democratic decision to sign up to such commitments. We need to move beyond the kind of idea that signing up to international commitments that are legally binding would have some reasonably threat to national democracy. We absolutely respect the United Kingdom has left,” said de Rynck on the EU’s demand that the United Kingdom sign up to level playing field rules.
De Rynck concedes the EU is “asking for a lot on state aid [dynamic alignment] because Member States and EU industry are very concerned’. Says: ‘We ought to find ways in which forward on the regulatory approach, also on state aid issues, otherwise we will not be able to conclude a deal.”
With regards to fishing quotas, de Rynck said there are “timid openings” on fishing and both sides have “maximalist” positions. “It’s time we get more into granular discussions on stocks on quotas, on access to waters and see where the landing zone is on that”.
Because pressures concerning Brexit might have lifted following recent developments on the trade negotiation front, we would expect the Pound to potentially rise in value.
However, expect rallies to ultimately be capped as this is an issue which will remain in place for some months, stifling the Pound’s full potential.
Expect headwinds to begin building again as year-end approaches, when the real arduous deadline facing the EU and United Kingdom arises.
FX Polls
Economic Events
Technical Analysis
Overall, the bias in prices is: Upwards.
By the way, prices are vulnerable to a correction towards 1.24.
The projected upper bound is: 1.29.
The projected lower bound is: 1.25.
The projected closing price is: 1.27.
Candlesticks
A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 9 white candles and 1 black candles for a net of 8 white candles. During the past 50 bars, there have been 28 white candles and 21 black candles for a net of 7 white candles.
A long upper shadow occurred. This is typically a bearish signal (particularly when it occurs near a high price level, at resistance level, or when the security is overbought).
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.
Three white candles occurred in the last three days. Although these candles were not big enough to create three white soldiers, the steady upward pattern is bullish.
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 85.3028. This is an overbought reading. However, a signal is not generated until the Oscillator crosses below 80 The last signal was a buy 14 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 68.08. 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 buy 54 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 126.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a buy 14 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 buy 9 period(s) ago.
Rex Takasugi – TD Profile
FOREX GBP= closed up 0.002 at 1.269. Volume was 59% below average (consolidating) and Bollinger Bands were 5% narrower than normal.
Open High Low Close Volume 1.268 1.273 1.267 1.269 50,903
Technical Outlook Short Term: Overbought Intermediate Term: Bullish Long Term: Bullish
Moving Averages: 10-period 50-period 200-period Close: 1.25 1.24 1.27 Volatility: 10 11 14 Volume: 130,976 125,813 114,486
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 0.1% above its 200-period moving average and is in an upward trend. Volatility is relatively normal as compared to the average volatility over the last 10 periods.
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 4 periods.
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