Image © Adobe Images
– Rally in the context of the Brexit leaves GBP head-on resistance in the charts.
– Fed rate cuts threaten the severe impact of US retail sales and consumer price index.
– But the USD has been challenged by reports of a US-China deal to end the trade war.
– The end of the trade is a blessing to US and global growth, the loss of the USD.
The pound-to-dollar exchange rate rebounded on Friday amid speculation that a change in the British government's stance on Brexit was underway as the pound sterling neared "resistance", which was hit by a major "pivotal" move. Point "is provided in the charts, for which this could prove insuperable British unity.
The pound was up against all major currencies on Friday as investors noted signs that the UK government could ease its "red lines" in Brexit to improve its outlook for an amicable exit from the EU before 31 October , Reports of a scheduled meeting between Prime Minister Boris Johnson and European Commission President Jean-Claude Juncker could maintain the positive mood until Monday, but there is reason to doubt that it will take much longer.
"The GBP / USD rise from its current September low of 1.1958 continues to target the lows of May and June at 1.2506 / 59, with the cross between these levels and the mid-July high at 1.2580 have short term problems, "says Axel Rudolph, technical analyst Commerzbank, "Once a weekly Friday Schart is created that is above the high of 1.2310. August, we will change our weekly outlook into an optimistic one."
Rudolph says the pound-to-dollar exchange rate is "bottoming out" after suffering losses earlier this year. However, a weekly closing price above 1.2310 is needed to maintain upside momentum. The pound was even trading at 1.2480 against the dollar on Friday, close to 1.25, where Rudolph says he will refrain from his bullish bet on the British currency.
Above: Pound-to-dollar rate at an hourly rate.
Commerzbank bought the pound-to-dollar exchange rate when it traded at 1.2069 last week and initially targeted a rise to 1.2670, but said it will close the bet on Friday when the 1.25- Level is reached. This coincides with a so-called "pivot point" in the charts. This is an area of support or resistance that analysts claim can often lead to a reversal or a decline in exchange rate trends.
"The modest recovery of the pound sterling over the last few days could come to an end, as the good news of Parliament's exclusion of a no-deal crash is now fully contained in the face of resistance around 1.2382 ahead of the pivot of 1.2500, we are more in a sell-on rallying stance, "said Ned Rumpeltin, European Head of FX Strategy TD Securities, "With the suspension of parliament, the ongoing Brexit debacle has entered a new phase, a period in which the probabilities favor further GBP-negative headlines from the ministers of the government."
Commerzbank and TD Securities are not alone in fearing the 1.25-pivot point in the pound-dollar price index because analysts from retail companies Forex,comAlso said on Friday, those with a short-term exchange rate risk should set aside the headlines of Brexit and focus on the incoming US economic data and the technical picture in the charts. Forex.com has the prospect of a decline in the exchange rate in mind.
"Regardless of the longer-term fundamentals, short-term traders need to closely monitor the incoming data and price movements here," said Fawad Rzaqzada, analyst at Forex.com. "We've reached a tipping point near the 1.25 trade, and at 1.2475, the GBP / USD tested last year's low at the time of this cabling, and once that level of support has been reached, this level can turn into a larger drag easy. " Above the psychologically important 1.25-handle is the Fibonacci retracement level of 38.2%. "
Above: Pound-to-dollar rate at daily intervals.
Analysts are watching pound-to-dollar price movements as markets react to the release of US retail data for August and continue to assess the potential impact of Thursday's inflation data, which showed surprising price pressure on US consumers last month. Increased and rising core inflation threatens to aggravate the expected EU decision Federal Reserve (Fed) cut interest rates again next week, while strong sales data released around noon may once again stir the central bank and possibly undermine the pound-dollar exchange rate.
"The USD is under pressure towards the end of the London morning and there is an increasing likelihood that the currency will end the third quarter on a more neutral basis (at least on a YD basis, where the BBDXY has since rallied 0.70% Early 2019), "says Stephen Gallo, European Head of FX Strategy BMO Capital Markets. "We feel confirmed that we warned our readers throughout the week that it was bad ideas to top USD long positions or aggressively position EURUSD from the short side this week."
The pound to dollar exchange rate was helped on Friday by positive developments in the US-China trade war, which deflated the dollar as a safe haven, benefiting from the uncertainty and economic concerns created by the tariff dispute between the country's two largest economies World were raised. President Donald Trump fired on Thursday Bloomberg News The US has reportedly envisaged an agreement that will temporarily end the trade war with China. However, it is crucial that he could be open to something like that in the future.
Trump told reporters after Thursday at 22:00 in New York that he would prefer to reach a lasting deal that resolves all issues but does not rule out an interim agreement that prevents new tariffs from entering into force in October and December while new dues may be repaid earlier this month. An end to the 18-month customs battle would be positive for the world economy and the non-dollar currencies, which, with the exception of the yen and the Swiss franc, were the true losers of the conflict.
Xinhua, China's state-run news agency, later reported Friday that US pork and soybeans are being dropped from the list of products for which retaliatory tariffs were imposed in July and September. The announcement on Friday followed another decision to exempt other US goods from duty. This decision was reciprocated by the US on Wednesday of this week.
Above: Pound-to-dollar rate at weekly intervals.
"A close trade deal seems close enough to shore up risk appetite, but a close agreement could only partially bridge the range of disagreements, providing little support for the investment outlook." The ongoing rally in emerging markets may continue for the time being but angry in October. " "says David Adams, strategist Morgan Stanley, "Although both the US and China have an incentive to provide stability prior to ministerial-level talks, we believe the risks may be biased toward further escalation."
Global growth has slowed down as a result of the trade war, and most currencies have devoted themselves to the safe haven and the high yielding dollar. And since mid-August, when the White House unveiled a plan to put an end to Chinese exports to the US that were not yet punitive, fears about the outlook have increased. Trump has since raised tariffs, but has postponed implementation in part until October and December.
Markets are expecting a series of Fed rate cuts before the end of the year, as a continued global slowdown in growth triggered by the trade war with China bites the US economy and President Donald Trump virtually casts the central bank on the sidelines Twitter This is met with tireless criticism in the obvious hope of driving economic expansion by lowering the cost of credit to businesses and consumers.
"The slowdown in US growth could bring the Fed closer to the point where it is forced to ease the financial conditions more than expected and weaken the USD, while in the meantime markets may be stimulated and encouraged by Chinese stimulus Politics Pricing Better Global Growth Prospects US-China Development News As RoW growth appears relatively more attractive, the USD's overall performance may decline, "says Morgan Stanley's Gek Teng Khoo.
The Fed's interest rate cuts and the expectation that more will follow have done little to change the fact that US bonds still offer investor returns that are far superior to those in other developed markets, which is why they have not really hurt the dollar. But with these rate cut expectations that persist as speculation about an end to the trade war, the dollar has fallen as some investors expect economic recovery and eventually higher interest rates elsewhere in the world.
Time to move your money? Get 3-5% more currency than your bank would offer by using the services of foreign exchange specialists at RationalFX. A specialized broker can provide you with an exchange rate that is closer to the real market price, saving you significant amounts of currency. Find out more here.