Source: Forex Analysis
The British currency received little support from macroeconomic reports today. Although the published data on the UK labor market was controversial, traders focused on the positive aspects of the release. This made it possible for the GBP/USD pair to move away from today’s lows and develop a minimal, but still a correction.
But in general, the pair’s situation has not changed: the pound is still under strong Brexit pressure, so any more or less large-scale price growth is perceived by the market as an occasion to open short positions. However, the lower limit of the range is very close – at the bottom of the 20th figure. To break through this level, traders need a more compelling reason, while the British are dominated by the usual market concern about the prospects of a “divorce proceedings”. In other words, the pound/dollar is trapped in the grip of fundamental and technical factors. On the one hand, there is a strong support level of 1.2000, on the other hand, the lack of powerful information lines, against the background of general nervousness over the upcoming political battles in the House of Commons.
That is why today’s release did not cause much excitement among market participants. Although this is partly due to the fact that the published figures are controversial. Thus, the unemployment rate unexpectedly rose to 3.9%, although according to general expectations, it should have remained at the same level – 3.8%. The number of applications for unemployment benefits has also increased significantly – by 28 thousand. Although it is worth noting here that according to the consensus forecast, this indicator should have shown a more deplorable result: +42000. Therefore, the real numbers in the end turned out to be much better than expected. But the wage component showed the strongest result. This indicator (excluding bonuses) jumped to an 11-year high (3.9%), confirming the positive trend in recent months. Total pay, which includes bonuses, also pleased investors with a growth of up to 3.7% (a three-year high).
It is worth recalling that the head of the Bank of England, Mark Carney, has repeatedly said that a possible increase in the rate will largely depend on the growth of wages, as this indicator spurs inflation. Of course, in the current environment, it all depends on Brexit’s prospects, but if Parliament nevertheless blocks the “hard” scenario, then the likelihood of tightening monetary policy in the first half of next year cannot be ruled out. It is also worth noting that the pound paired with the dollar is now at its lowest values: the relative cheapness of the British currency will also play a role in accelerating inflation in the second half of the year.
Thus, the correction of the GBP/USD pair allows traders to open short positions with a larger price gap in the future. The target of the downward movement is still the 1,2005 mark – this is a psychologically important level of support, to overcome which a powerful information occasion is necessary. Nevertheless, the pound-dollar pair continues to be in a downward trend, so it is advisable to use the pair’s growth for a more profitable sale of the British currency.
There is still no consensus among analysts whether the deputies of the House of Commons will be able to block the implementation of the hard Brexit scenario or not. Boris Johnson admitted yesterday that his main opponent, the leader of the Labour Party, Jeremy Corbyn, plans to drag out the country’s exit from the European Union “for many years”. Corbyn, in turn, does not hide the fact that he plans to initiate the issue of declaring a vote of no confidence in the prime minister. If the Conservatives cannot then form a government within 14 days, then the country will face early Parliamentary elections. True, Johnson may set the date for elections in November, that is, when the UK is already leaving the EU without any agreement.
Anticipating such a scenario, Johnson’s opponents can prevent its implementation. There is another option, which, however, was used only a few times in modern history – for example, during the Second World War and the global economic crisis of the early 30s of the last century (that is, during the Great Depression). It is about creating a “government of national unity”, which is formed by members of the temporary inter-party majority. According to analysts, at the moment this is a very unlikely option, but nevertheless, it cannot be ruled out. A politically mottled Parliament can at a critical moment rally and prevent the hard Brexit.
Thus, the outcome of the “Big Political Battle”, as journalists have already dubbed the forthcoming confrontation between the prime minister and MPs, is far from a foregone conclusion. Therefore, the pair actually froze within the framework of the 20th figure, while maintaining a bearish potential. All this makes it possible for you to open short positions on the GBP/USD pair with corrective upward pullbacks while aiming for a downward goal in the price area of 1.2010.
The material has been provided by InstaForex Company – www.instaforex.com