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What is the Trading Perspective on the GBP?

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May 24, 2017 By: , No Comments

The GBP/USD pair has come in for some tap recently. A big part of the reason the sterling is being shorted by currency traders is the recent release of data by the ONS. According to the stats, public-sector net borrowing rose above forecasts to £9.648 billion, compared to £8.15 billion in April a year ago. This data naturally impacts currency markets negatively, and ignited a sterling selling frenzy.

Speculative activity resulted in the GBP/USD pair dropping towards 1.2950, before the reversal took place. A resurgent EUR is also undermining the GBPs performance. Recent economic data releases from Europe show an economy on the mend. Inflation is moving within its target range, and growth is on the up and up. The positive impact of the recent French presidential elections has helped to spur a rally in Europe.

Terror Blast Unsettles the GBP/USD Pair

The pound was sold after the Manchester blast sent shockwaves through the UK economy. A suicide bomber killed 22 people and injured dozens in an attack that has now been claimed by ISIS. Such was the severity of the Manchester terror attack, that all UK political parties suspended their campaigns and offered comfort and solidarity to the people. Investors are unlikely to rush into buying the GBP, given the uncertainty that is now rife in the UK. The June 8 general election is around the corner, and there are concerns about a shrinking majority for Prime Minister May.

Various economic data releases are slated to be released soon, including UK inflation. Currency analysts are divided on how they perceive the pound’s future movement. Some fear a short-term decline towards 1.2920, with further decreases towards 1.2850 or 1.2845. Once the critical 1.2800 handle has been broken, the GBP/USD pair will be testing the 1.2770 handle. For all the GBP bulls out there, 1.3000 remains a distant proposition. However, if speculators can muster the support then the GBP/USD pair could rise above the 1.3100 level and test new resistance levels.

The GBP/USD pair has an uncanny ability to remain buoyant even when data points in the opposite direction. The cable is likely to remain range bound (1.2850 – 1.3050) through June 8, 2017. The current outlook on the cable remains neutral, and there isn’t enough data to switch things to a bullish mood. Across the Atlantic, the USD has had all sorts of troubles to contend with. One of the most exigent concerns is the New Home Sales data.

According to reports, new home sales plunged to 569K, 42K less than the forecast figure. The GBP has been trending lower against its rivals in Asia and Europe. However, by Thursday, 25 May 2017, Q1 GDP estimates will be released in the United Kingdom. This economic data release will move market sentiment in a big way. Forecasts anticipate a gain of 0.3% in UK GDP for the first quarter this year.

White House Releases Trump Budget

The USD has all sorts of problems to contend with. For starters, the DXY is trading in negative territory at 97.27 – down 0.94% over the past 5 days. For the year to date, the DXY is down 4.99%. Meanwhile, Trump has taken flight while scandals are brewing back at home. The president is embroiled in problems, what with the firing of FBI director Jim Comey, and comments that he was asked to squash an investigation into General Flynn.

The White House budget is unlikely to gain traction in Congress, despite its $3.6 trillion spending cuts within a decade. According to Trump and his team of economists, the US could effectively run a balanced budget within that period. Nonetheless, government spending needs to be cut, and if the budget is passed it will certainly boost the USD and turn the GBP/USD pair around.

 

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Brett Chatz

About Brett Chatz

Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for iForexTrader.co.uk.

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