Pound breaks protocol. Forecast as of twenty-two.07.2021

Pound breaks protocol. Forecast as of 22.07.20212021-07-22 2021-07-22 Dmitri Demidenkologo2021-07-22 2021-07-22 Pound breaks protocol. Forecast as of 22.07.2021Dmitri Demidenkologo

It seems to the UK authorities that its territorial integrity is being violated, the EU sees grounds for smuggling into its internal market. A compromise seems to have been found, but, as it turned out, not everyone is satisfied with it. How does this affect GBPUSD? Let us discuss the Forex outlook and make up a trading plan

Weekly pound fundamental forecast

The British pound is showing incredible flexibility in the second half of July. The breakout of the support at 1.38, which I recommended to use for GBPUSD sales, contributed to the pair's deep decline. GBPUSD even reached the first of the two previously set targets at 1.365, after which it sank almost one more figure. This was followed by a sharp rise amid improved global risk appetite and US stock indices recovery. Societe Generale believes that if US stocks continue to sell off, EURGBP will soar to 0.87. In the meantime, the sterling's losing streak against the euro has stopped at the 5-day mark and has become the longest since September.

Pound vs euro dynamics

Source: Bloomberg.

The main drivers of the pound's fall were the speculators' exit from the positions related to expectations of the BoE monetary restriction, as well as the return of the Brexit theme. Official London has declared that it can no longer tolerate the EU's excessive bureaucracy. Under a previous agreement, goods moving from the UK to Northern Ireland are subject to customs checks and procedures as if they were moving to the EU. The number of regulatory checks currently required on goods arriving into Northern Ireland from Great Britain equates to 20% of the total undertaken by the entire EU, although the population of Northern Ireland is only 0.5% of the EU's total population.

As a result, London made Brussels an offer that can only be refused. The UK has proposed to end inspections of products that are labeled exclusively for use in Northern Ireland. The system will be controlled by the UK, although it is committed to providing the EU with access to the data. Of course, Brussels refused. The EU is not going to return to negotiations that have already been completed.

A few months ago, Boris Johnson called the Brexit deal brilliant, and now he renounces it. Is this a signal to the rest of the world? Undoubtedly! It turns out that signing contracts with the UK is useless. The resumption of political risks contributed to a strong pound fall. However, thanks to the improved global risk appetite, the GBPUSD pair managed to rebound from the bottom. But before the conflict over inspections in Northern Ireland, UK foreign trade with the European Union was recovering faster than with the rest of the world.

UK export dynamics

Source: Bloomberg.

The global economic recovery is extremely important for currencies, whose issuing central banks are signaling about monetary policy normalization. If things go wrong and global GDP growth stalls, the regulators will have to change plans. At the same time, the hold of the longs will cause serious damage to the Canadian and New Zealand dollars, the Norwegian krone, and the pound. In this regard, the fall of the S&P 500 is a strong argument in favor of selling these currencies, while the rise in the stock index gives grounds for purchases.

Weekly GBPUSD trading plan

In my opinion, the return of the Brexit topic will continue to put pressure on GBPUSD. So if the price doesn't to break out levels of 1.375 and 1.3825 it will be relevant to enter sales.

Price chart of GBPUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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