Decisive week for the pound

Consumer prices in the US declined by 0.1% in December, this is the first price reduction in 9 months, year-on-year price growth slowed to 1.9%, which was especially noticeable against the + 2.9% background last summer.

The slowdown in price growth did not come as a surprise to the market, so the dollar almost did not respond to the deterioration in statistics, the markets have long been ready for the Fed to adjust its plans for 2019.

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Shutdown in the United States has already broken the record for the duration, more than 800 thousand civil servants did not receive a salary, scenarios for resuming the government's work are exotic. For example, declaring a state of emergency that can bring the dispute between Democrats and Republicans to a judicial plane, but at the same time, the government's performance will be restored.

The internal political struggle prevents the dollar from playing back part of the losses, especially since the Fitch agency announced a decrease in the US investment rating if the national debt ceiling is not raised and the lockdown is not completed. Against the background of a slowdown in the growth of oil prices and the return of risk aversion on Monday morning, the dollar may strengthen slightly during the day, even in spite of the internal political crisis.

Eurozone

Euro today in the background due to the lack of serious factors that can increase volatility. Most likely some decline in EUR / USD, the nearest support of 1.1420. The publication by Eurostat of the report on industrial production in November will not lead to a pronounced market reaction since the slowdown has already been taken into account in the quotes.

Great Britain

The volume of industrial production declined in November by 0.4%, the year-on-year decline is already 1.5%, processing decreased by 0.3% and 1.1%, respectively, while stability is observed only in the service sector and construction.

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At the same time, the volume of industrial exports slowed to almost zero, which is the worst result since February 2016.

Markets on Monday will be fully focused on the upcoming parliamentary vote on Brexit. At the moment, the chances of a positive outcome are small, and there are at least two reasons for this. First, parliament needs to have time to pass at least six key bills on migration, finance, health, trade, agriculture, and fisheries. And secondly, the EU on Monday will provide guarantees of the temporary nature of the open border with Ireland, but only in the form of a letter signed by Tusk, and not in a legally binding form, as the British side insists. It is the reaction to the EU letter that will give an answer to how many votes against in the end there will be, which will allow assessing the alignment of the re-voting, which in case of failure on Tuesday will be held on January 21.

Scenarios for the pound are diametrically opposed. If the agreement is unexpectedly supported already on January 15, GBP / USD may shoot to the highs of the year 1.40 - 1.45, but the chances of such an outcome are small. If the vote on January 21 turns out to be successful, the amendments in the form of a compromise may prevent the pound from growing as high, but in any case, there will be growth. Here, the determining factor will be the reaction of EU leaders to the January 15 voting results.

The most likely scenario is that in which the effect of Article 50 will be prolonged at a later date, which will create a positive background for the pound and will also be a bullish factor.

It is also impossible to exclude the possibility of a repeated referendum, especially if the opportunity for the UK to remain in the EU is taken into account. It is obvious that Brexit is not going at all as it was intended, a change in the geopolitical situation can create conditions for such a scenario, which was officially considered quite recently impossible.

GBP / USD does not decline even against the background of increasing risks, which indicates a potential for growth. Players will wait for an insider until it is there, the pound will remain in the range of 1.2805 - 1.2880, a movement to the north is slightly more likely.

The material has been provided by InstaForex Company - www.instaforex.com