British Pound: USD/GBP (GBP=X) to trade heavily this summer as political risk rises

British Pound: USD/GBP (GBP=X) to trade heavily this summer as political risk rises

British Pound: USD/GBP (GBP=X) to trade heavily this summer as political risk rises

Pound Sterling could be in for a rough ride against the Dollar and Euro through the remaining summer months, according to strategists at HSBC, who say the mounting threat of both a ‘no deal’ Brexit and general election will weigh on the British currency. 

However, those looking to transact out of Sterling over coming months should note that HSBC forecast a strong recovery in the UK currency by year-end.

Sterling has fallen notably since the beginning of last month, with losses blighting the Pound ever since Prime Minister Theresa May announced her resignation, which now looks set to open the door to 10 Downing Street for former foreigns secretary Boris Johnson to take the reigns as the UK’s first pro-Brexit leader. 

However, the ongoing Conservative Party leadership election and resulting threat of a leave-backing Prime Minister is ruffling feathers within the remain-leaning parliamentary wing of the Conservative Party, which can’t afford to lose very many of its MPs at all.

According to HSBC, this makes for a difficult summer for the currency. 

“Any new leader might struggle to command House of Commons support, with the Conservatives still in a minority, and with Brexit having frayed many of the traditional relationships between and within various parties. The new leader might feel the need to push for a clear ‘mandate’,” says Dominic Bunning, a strategist at HSBC. 

The governing Conservative Party depends on the Northern Irish Democratic Unionist Party to provide it a parliamentary majority of just three votes. However, at least that number of MPs have either threatened to side with the opposition in a confidence vote if the government attempts to pursue a ‘no deal’ Brexit.

If the government loses such a vote the opposition Labour Party will be given 14 days to attempt to form a government. It’s far from certain that Labour could cobble together a government because it’d have to enlist both the anti-Brexit Liberal Democrats and the pro-Brexit Democractic Unionist Party in order to command a majority.

Some others have said they might resign the whip if Borish Johnson is elected leader. Any resignations or defections could force Johnson, who’s favourite to succeed Theresa May after the leadership hunt concludes in late July, would risk forcing the new Prime Minister into calling an immediate general election.

“The risk of another significant change in politics – whether because of a change in Government or a significant shift in UK-EU relations – will likely create enough uncertainty to keep GBP soft for the near future,” Bunning warns, in HSBC’s latest review of currency markets.

Overall, the bias in prices is: Sideways.

The projected upper bound is: 1.29.

The projected lower bound is: 1.26.

The projected closing price is: 1.28.

Candlesticks

A white body occurred (because prices closed higher 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 20 white candles and 30 black candles for a net of 10 black candles.

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 92.3799. This is an overbought reading. However, a signal is not generated until the Oscillator crosses below 80 The last signal was a buy 4 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 54.62. 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 17 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 105.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a buy 4 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 3 period(s) ago.

Rex Takasugi – TD Profile

FOREX GBP= closed up 0.002 at 1.276. Volume was 70% below average (consolidating) and Bollinger Bands were 36% narrower than normal.

Open High Low Close Volume___
1.274 1.278 1.273 1.276 47,003

Technical Outlook
Short Term: Overbought
Intermediate Term: Bearish
Long Term: Bearish

Moving Averages: 10-period 50-period 200-period
Close: 1.27 1.28 1.29
Volatility: 8 7 10
Volume: 120,600 138,977 172,046

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 1.3% below its 200-period moving average and is in an downward trend. Volatility is 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 29 periods.

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