GBP Price Hinges on Brexit, August BOE Meeting, UK Inflation
- Spot GBPUSD plunged to a fresh year-to-date low and now trades at its weakest level since April 2017
- UK Prime Minister Boris Johnson now sits at the helm of British Parliament and raises the risk of no-deal Brexit
- The August BOE meeting could underscore its warning signals of the potential impact of no-deal Brexit and potentially walk back its relatively hawkish stance on rates
08/01 THURSDAY | 11:00 GMT | GBP Bank of England Rate Decision & Quarterly Inflation Report
With PM Boris Johnson officially at the helm of British Parliament, the drums for no-deal Brexit are beating louder across the UK. This has put spot GBPUSD under a considerable amount of pressure with potential for further weakness which could be sparked by the August BOE meeting slated for next Thursday at 11:00 GMT.
The Bank of England has been shackled to a cautious monetary policy normalization approach considering the vast amount of risk and uncertainty surround Brexit. Although, the hawkish tilt by the UK’s central bank has shifted to a more neutral bias recently and monetary policy outlook could turn even less optimistic at the upcoming August BOE meeting. Aside from forward rate guidance, the BOE will also provide markets with its quarterly inflation report.
Pairs to Watch: EURGBP, GBPJPY, GBPUSD
SPOT GBPUSD TECHNICAL ANALYSIS: DAILY PRICE CHART (JULY 2018 TO JULY 2019)
GBPUSD price remains below the daily 8-, 13-, and 21-EMA envelope, and if the daily candle were to finish at these levels, it would represent the lowest close of the year. Daily MACD has just turned lower again while bearish territory, a sign of significant weakness. Slow Stochastics have turned lower as well. Bearish momentum is accelerating again for GBPUSD; a breakdown to fresh yearly lows appears to be around the corner.
IG CLIENT SENTIMENT INDEX: GBPUSD DAILY PRICE CHART (JANUARY 28, 2019 TO JULY 26, 2019)
Spot GBPUSD retail trader data shows 82.1% of traders are net-long with the ratio of traders long to short at 4.59 to 1. In fact, traders have remained net-long since May 06 when GBPUSD traded near 1.29061; price has moved 4.0% lower since then. The percentage of traders net-long is now its highest since Jul 17 when GBPUSD traded near 1.24318. The number of traders net-long is 9.3% higher than yesterday and 19.4% higher from last week, while the number of traders net-short is 21.5% lower than yesterday and 26.9% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBPUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBPUSD-bearish contrarian trading bias.
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-- Written by Christopher Vecchio, CFA, Senior Currency Strategist & Rich Dvorak, Junior Analyst
Connect with @CVecchioFX and @RichDvorakFX on Twitter for real-time market insight
