GBPUSD, H1
Yesterday, June 20, Cable broke and breached the 20-day moving average for only the sixth day in the last 60 and recovered the 1.2700 handle as the USD had one of its worst days of the year. The recovery in GBPUSD was much more to do with USD weakness than GBP strength. But how long can the downtrend in Sterling persist? Well, as the old adage goes, trends can run much longer than you often expect. So far today, Cable has drifted lower, correcting after posting a nine-day high at 1.2727 yesterday. The Pound concurrently came under pressure against the Euro and other currencies with markets struggling to be bullish about the Pound, at least over the near- to mid-term. The crossing EMA strategy (H1) triggered at 1.2700 on the close of the 08:00 GMT candle, creating T1 at 1.2688 and T2 at 1.2670, for a net gain of 30 pips. The initial Stop Loss, above the turn in the market, at 1.2724.
Also yesterday, the BoE left monetary policy unchanged, as widely expected. The BoE still argued that near term data since the last policy meeting “have been broadly in line with the May (Inflation) Report”, but added that “downside risks to growth have increased” and “global trade tensions have intensified”. The central bank cut back its own growth projection for Q2 to 0.0% q/q from the 0.2% q/q expected previously. For now then the BoE remains on the fence amid ongoing Brexit uncertainty, while maintaining an implicit tightening bias in case of a smooth Brexit transition, a scenario that markets clearly are discounting. Even in the case of a no-deal Brexit, rate cuts are not guaranteed, with the BoE highlighting that any policy reaction will depend on inflation and growth developments and could go either way. However, the overall statement was not as dovish as market reactions suggest against the background of dovish signals from other central banks.
The spectre of PM Johnson looms next month, along with a hard-line pro-Brexit Cabinet behind him. The October 31 deadline that he has unequivocally committed to as the Final Brexit deadline is a little over 4 months away and also looms large over Sterling. Cable traded as low as 1.2505 this week, and the huge 1.2500 psychological level cannot be over emphasised. The trend remains firmly biased lower, as we complete just the third positive week in the last ten.
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Stuart Cowell
Head Market Analyst
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