Brexit Briefing: GBP/USD Well Placed to Gain as Brussels Talks Proceed
- The British Pound is well placed to make further gains once the current sideways trend ends.
- Little is expected from the fourth round of Brexit talks so any disappointment will likely be limited.
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As the fourth round of Brexit talks between the UK and the EU resume in Brussels this week, GBPUSD continues to consolidate after its recent gains. However, hopes of progress in the negotiations are so low that another leg higher is increasingly possible.
As I wrote here at the weekend, the pair is likely to continue to take a breather near-term. However, the next move could well be upwards. Large speculators’ net-short position in the British pound has been reduced by a record amount, according to the latest Commitments of Traders report by the US CFTC. Moreover, IG Client Sentiment data are currently sending out a bullish signal for the GBPUSD pair.
In a further sign that traders are becoming more bullish about the prospects for the UK currency, there was little reaction to late Friday’s downgrade of the country’s sovereign debt rating by the Moody’s credit-rating agency. Instead, GBPUSD has held its ground after its recent strong gains.
Chart: GBP/USD Daily Timeframe (Year to Date)
Few traders are expecting a Brexit deal near-term, or even an end to hostilities, so any sign of progress could give the Pound a boost. Moreover, UK Prime Minister Theresa May’s Friday speech on Brexit in Florence may perhaps have signaled a more market-friendly softer Brexit. Against the background of a likely rise soon in UK interest rates, going short the Pound from here looks like a risky proposition.
Upcoming UK/EU Event Risk, September 26, 2017 (All Times GMT)
--- Written by Martin Essex, Analyst and Editor
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.