British Pound: USD/GBP (GBP=X) is forecast to extend lower
The Pound-to-Dollar exchange rate is forecast to extend lower by strategist Russel Sandiford of ACY Securities.
GBP/USD is currently located at 1.2211, having gone as high as 1.2522 in late October, and Brexit headlines will likely extend the Pound’s weakness whilst the U.S. Dollar could strengthen from a variety of short-term drivers.
The main reason for expecting the Pound to weaken is that the UK government is taking an increasingly hardline in Brexit negotiations with Brussels and this is raising the probabilities of a ‘nob deal’ exit.
This is reflected in Downing Street’s recent admission following a phone call between Prime Minister Boris Johnson German Chancellor Angela Merkel that a deal was now almost “impossible”.
The previous base-case scenario at ACY Securities was of an extension followed by a general election; both of which were seen as inconclusive but mildly positive for Sterling.
But Johnson’s increasingly trenchant stance suggests a heightened risk of a hard-Brexit, perhaps even on October 31, with a negative outcome for Sterling.
“Bottom line, a UK election is still possible, but a hard exit seems more likely now that we are only (22) days away from the October 31 deadline. This all equals Sell the GBP and play against the USD or Yen,” says Sandiford.
The U.S. Dollar side of the pair, meanwhile, is seen as potentially rising from a combination of three possible sources.
The first is that inflation data out on Thursday at 13.30 BST could be higher than expected, and this could lead to expectations the Federal Reserve might hold off from cutting interest rates as soon as the market is expecting.
Lower interest rates weaken the Dollar as they make the U.S. a less attractive place for investors to park their money, reducing net inflows. So, holding off from making another rate cut would help support the currency.
The second factor is that trade talks between the U.S. and China starting on Thursday might yield a small ‘win’. Although Sandiford does not state what form this might take other analysts have suggested the U.S. may extend the October 15 deadline for the imposition of higher 30% tariffs on $250bn of Chinese imports, currently tariffed at 25%.
The third factor which could boost USD is that the minutes of the September Fed meeting, out on Wednesday at 19.00 BST, may reveal a more optimistic outlook.
This, however, may now be less likely after Fed official Charles Evans said he wouldn’t mind another rate cut yesterday, Tuesday 9. Although Evans is a known dove his comments represented a more unequivocally dovish stance than before and come as markets grow more pessimistic about the U.S. economy.
Overall, the bias in prices is: Downwards.
The projected upper bound is: 1.24.
The projected lower bound is: 1.20.
The projected closing price is: 1.22.
A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 4 white candles and 6 black candles for a net of 2 black candles. During the past 50 bars, there have been 24 white candles and 26 black candles for a net of 2 black candles.
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 8.7891. This is an oversold reading. However, a signal is not generated until the Oscillator crosses above 20 The last signal was a buy 6 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 40.71. 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 40 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 -128.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a buy 5 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 sell 11 period(s) ago.
Rex Takasugi – TD Profile
FOREX GBP= closed up 0.001 at 1.221. Volume was 100% below average (consolidating) and Bollinger Bands were 10% wider than normal.
Open High Low Close Volume___
1.220 1.222 1.220 1.221 502
Short Term: Oversold
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period 50-period 200-period
Close: 1.23 1.23 1.27
Volatility: 4 9 9
Volume: 90,511 113,359 142,493
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 3.9% below its 200-period moving average and is in an downward 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 bearish on GBP= and have had this outlook for the last 5 periods.
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