Weekly fundamental forecast for pound sterling
Playing good cop/bad cop can sometimes be efficient not only in interrogation but also in negotiation. The difference is that one of the cops has to quit in the end. Dominic Cummings, the mastermind of Brexit and Boris Johnson’s adviser, resigned while David Frost, a supporter of “carrot” policies, stays. It gives GBPUSD bulls even more clues than comments on the negotiations themselves. The pound soared to the top of figure 32 against the USD, hoping that the long-awaited deal would be finally made. It won’t probably stop.
David Frost said long before the 2016 referendum that both parties would have to make an effort to sign a deal, but Great Britain would have to yield in the end. His comments look like a prophecy now. According to Bloomberg’s experts, the basic scenario is a Brexit that implies a deal between London and Brussels. If this scenario is realized, the GBPUSD quotes will have risen to 1.35 by mid-2021. If the negotiations fail, they will drop to 1.25.
Forecasts for pound
Having faced the deepest recession among the G7 countries, Britain’s weak economy will hardly survive additional tariffs and quotas. The Bank of England will have to introduce negative rates. At the same time, the pound’s bearish forecast of $1.25 looks better than in June ($1.18) or in August ($1.1). The USD’s downbeat prospects must have been factored in the estimates.
Both parties should make an effort to reach a result. The S&P 500’s historic highs, which indicate a high-risk appetite, put pressure on safe-haven assets and push the GBPUSD upwards as efficiently as expectations of a Brexit deal. However, the higher the stock index rises, the more its rally reminds of a bubble. The US economy is hardly alive, corporate profits leave much to be desired, the epidemiological situation worsens, and vaccination is still far away.
Weekly trading plan for GBPUSD
The question is what will happen first: a UK-EU deal or the S&P 500’s pullback? According to the Sun’s insiders, a breakthrough in Brexit talks should be expected on 23-24 November. Will the stock index hold on to the current levels for the next few days? If it does, the GBPUSD will manage to reach the previous target of 1.34. If not, the coming week will be a roller-coaster ride, and the pair will tend to consolidate in the range of 1.312-1.338.
What’s more, a deal between Great Britain and the EU isn’t a 100% guarantee of the pound’s further consolidation. The British economy is vulnerable, and London will have to weaken the national currency to finance double deficit. In December, selling the pound in a bullish market can become as relevant as buying it in a bearish market in October-November.
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