The pound gave the initiative to the dollar

The British pound received another good news but not in a hurry to strengthen against the US dollar. Yes, the European Union approved the deal with Foggy Albion and warned British lawmakers that there is no "B" plan. Also, the consequences of indiscriminate Brexit are much worse than an agreed exit from the EU. Nevertheless, the final decision will be made by the parliament and until its meeting, which is likely to take place on December 10-12, the sterling will continue to be in limbo.

Let me remind you, according to the consensus forecasts of Reuters experts, the chaotic Brexit will bring down the GBP/USD price to 1.2. On the contrary, the contract signed by both parties will allow the pair to grow to 1.35. It is possible that the range can be even wider from 1.15 to 1.4. In such an environment, many hedge funds and asset managers refuse to keep the pound in their portfolios. Let the net-short speculative positions on sterling be reduced but they are still close to extreme levels.

The dynamics of the pound and the speculative positions


The acceleration of the GDP in the third quarter in a Foggy Albion amid a strong labor market as well as, the existing risks of accelerating inflation to 3% along with the Bank of England's willingness to raise the repo rate by another 0.75 percentage points argue in favor of underestimating sterling. However, in an environment where politics dominates macroeconomic statistics, large players prefer to wait.

Indeed, it is possible that Theresa May's arguments about general chaos in the event that the draft agreement with the EU is rejected by the British Parliament look reinforced, but do not exclude water that wears away the stone. So it was in the summer of 2016, when few people expected just such a result of the referendum that took place. However, the citizens of the United Kingdom got an idea of what it means for the economy to fall with the GBP/USD from 1.5 to 1.3 in a few hours and they may not want to step on the old rake.

Let's not forget that disapproval of the deal by the British lawmakers can lead not only to disorderly Brexit or to special elections, but also to a repeated referendum. In which, after the bitter experience, victory will most likely be celebrated by opponents of the so-called divorce. That is why UBS Wealth Management assures its customers that the sterling will not go deep below $ 1.2 and from this level there is a great opportunity to form long-term long positions.

In any case, the initiative in the pair GBP / USD will be owned by the US dollar against the background of the passivity of the pound in connection with the expectations of December 10-12. Its dynamics will be influenced by the release of GDP data for the third quarter (second estimate) and the publication of the minutes of the November meeting of the FOMC. In the case of surprises for the "bulls" on the USD index of surprises, the analyzed pair can move in the direction of 1.295-1.3.

Technically, without a release of the GBP / USD quotes from the triangle, it's premature to talk about the recovery of an upward long-term trend or the realization of target by 161.8% using the AB = CD pattern.


The material has been provided by InstaForex Company -