Sterling (GBP) Talking Points:
- Important week ahead may keep Sterling in check.
- A Soft Brexit or no Brexit at all are now being priced into Sterling.
The DailyFX Q1GBP Forecasts are available to download including our short- and medium-term look at Sterling.
Fundamental Forecast for GBP: Neutral
A very, very close call not to change our Sterling forecast to bullish this week after market sentiment took a marked shift towards a Soft Brexit or no Brexit at all, both GBP positive. On Tuesday PM May’s Brexit bill took a hammering in the HoC with the PM losing the vote by a record margin of 230 votes although the PM did win the subsequent no confidence vote, mainly due to the DUP vote. As a result, PM May must present her plan B to Parliament on Monday, a bill that is likely to look like Plan A. This plan B will be debated all next week. While the option of a No Deal Brexit is now highly unlikely, the PM has yet to say this and is unlikely to ahead of any further discussions with the EU.
Sterling took this week’s votes to heart and began re-pricing all GBP-crosses pushing them higher. These moves also made Sterling technical set-ups look more positive, providing another uplift. While I think that Sterling will continue to make weekly gains, next week may well throw out negative headlines which will dampen any rally, although losses should be limited and contained within recent trading ranges. From a technical point of view, sell-offs should now be viewed as potential buying opportunities.
It is likely that we have already made the lows in most if not all Sterling crosses, although the last 2+ years has taught us that nothing can be taken for granted where Brexit is involved. Remain patient and disciplined when looking for entry points.
GBPUSD Daily Price Chart (May 2018 – January 18, 2019)
IG Client Sentiment data show 52.0% of traders are net-long GBPUSD. We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests that GBPUSD prices may continue to fall. However, the combination of recent daily and weekly positional changes gives us a mixed trading bias.
--- Written by Nick Cawley, Analyst
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