British Pound: USD/GBP (GBP=X) highly volatile time for the currency

British Pound: USD/GBP (GBP=X) highly volatile time for the currency

British Pound: USD/GBP (GBP=X) highly volatile time for the currency

There is a considerable bundle of data and events in the week ahead for Sterling, which suggests it could be a highly volatile time for the currency.

On the political front there will be votes on amendments to the Trade and Customs Bill, which help form the basis of the government’s new ‘softer’ Brexit proposal. These are expected to take place on Monday 16 and Tuesday 17.

They could be critical in gauging whether the plan has a likelihood of success and implementation.

Another legislative showdown takes place in the UK House of Commons as the Trade and Customs Bills are voted on. Amendments to the bill have come from ‘hard’ Brexiteers (trying to undo the white paper) and Remainers (trying to bind the UK to a customs union). Some of these votes could come down to the wire, and have significant implications for Brexit negotiations.

Sterling may catch a bid if Brexit supporters in the Conservative party fail in their upcoming attempt to harden the UK government’s plan on leaving the EU, as failure should increase the GBP-positive probability of a relatively soft Brexit.

We note a string of opinion polls out over recent days that shows support for the Convervatives has fallen below that of Labour with a good proportion of voters flocking back to UKIP having judged that May will not deliver the Brexit they desire.

This will remind Convervative lawmakers that bringing down the government will likely throw their party onto the opposition benches. It does also however offer the potential to sharpen the determination of Brexiteers who believe their electoral success will lie with delivering a clean ‘hard’ Brexit.

From a ‘hard’ data perspective the week has three major, potentially market moving, releases too: labour market data on Tuesday, CPI on Wednesday and retail sales on Thursday – all are at 9.30 UK time (8.30 GMT).

Their significance is further heightened by the fact that they may impact on the decision-making of the Bank of England (BOE) when it has its pivotal meeting in August. Because the probabilities of a hike or not, are so evenly balanced, next week’s data could prove critical in swinging the vote one way or another.

Labour market data for May, is expected to show continued improvement with a 150K rise in employment on a three-month-on-three-month basis.

The more important wage data component of the release, which is more of an influence on inflation and therefore Bank of England decision-making, is expected to show only modest rises of 2.6% for headline and 2.8% (including bonuses).

Stronger wage rises are necessary to increase the chances of a rate hike and a disappointment could weigh heavily on Sterling.

CPI inflation data in June, out on Wednesday, is likely to show a rise due to the temporary influence of higher oil prices, however, if the main driver is in fact only fuel prices, it is unlikely to have much impact on the Bank of England who are more likely to look through inflation from temporary factors.

Therefore we believe the core CPI reading will be of more interest to the Bank of England as it shows the underlying inflationary pressures present in the economy.

Core CPI is forecast to read at 2.1% (month-on-month) while headline CPI is forecast to read at 0.2% month-on-month and 2.6% year-on-year.

We suspect that CPI inflation edged up to 2.6% in June, owing to a rise in energy prices. But this should not mark the start of a sustained rise.

More sunshine, warm weather, and World Cup should be supportive. Our base case 0.4% forecast leaves a very strong trend for Q2 sales, and a solid hand-off to Q3.

Markets are forecasting a reading of 0.4% on a month-on-month basis and 3.9% annualised.

Overall, the bias in prices is: Downwards.

The projected upper bound is: 1.34.

The projected lower bound is: 1.31.

The projected closing price is: 1.32.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 7 white candles and 3 black candles for a net of 4 white candles. During the past 50 bars, there have been 25 white candles and 24 black candles for a net of 1 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.

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 44.5652. This is not an overbought or oversold reading. The last signal was a sell 5 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 46.87. 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 11 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 44. This is not a topping or bottoming area. The last signal was a buy 11 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 down -0.000 at 1.323. Volume was 100% below average (consolidating) and Bollinger Bands were 52% narrower than normal.

Open High Low Close Volume___
1.323 1.324 1.322 1.323 320

Technical Outlook
Short Term: Neutral
Intermediate Term: Bullish
Long Term: Bearish

Moving Averages: 10-period 50-period 200-period
Close: 1.32 1.33 1.36
Volatility: 5 7 9
Volume: 157,736 165,513 152,059

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 2.6% below its 200-period moving average and is in an upward trend. Volatility is high 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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