GBP/USD: the pound lives in hope
In July, the GBP/USD pair bounced off the annual lows and in just a few trading days was able to reach the middle of the 33rd figure, continuing to show a bullish sentiment. The greenback attempts to resist, but the pound is moving up, gradually returning the lost positions.
In the last two years, that is, since the historic referendum on the withdrawal of Britain from the EU, the issue of Brexit has traditionally supplanted all other fundamental factors – be it American inflation or the prospect of an increase in the interest rate by the Bank of England. Future relations between London and Brussels are at stake, so traders have been extremely sensitive to any more or less significant news on this topic for the second year.
The events of the last few days were no exception. A new round of “divorce” began on Friday, when Theresa May gathered members of the Cabinet in her country residence to a government meeting. On it, the British Prime Minister announced a renewed course of Brexit, which differed markedly from the previous position line.
The main difference is the preservation of a significant level of integration with the European Union, especially in the business sphere. What exactly is going on, is still unknown, as the “White Paper” (the scenario of future relations with the EU) will be published on July 10. But, according to information from various sources, the proposed regime of bilateral trade with the EU does not significantly differ from the terms of the current customs union. By and large, Theresa May decided to significantly soften her position on the eve of the next EU summit, which will be held at the end of the month.
Such a radical turn was not to the liking of the Minister for Brexit David Davis – he resigned. It is worth noting that Davis was one of the most ardent supporters of the “hard” scenario of the country’s withdrawal from the EU, so his departure was positively received by the pound. However, the GBP/USD pair started trading week, albeit from the upward gap, but without rapid growth.
First, traders are confused by the fact of political uncertainty: together with Davis, Brexit Secretary of state Steve Baker and Junior Minister Suella Braverman left their posts. The British press again started talking about the fact that supporters of the hard Brexit in the Conservative party can initiate the process of her resignation because of such a sharp change of course. Secondly, the market is waiting for the publication of the updated “White paper”: its text was to be published on Friday, but political events have made their own adjustments, so the content of the fateful document we will know today.
That is why the bulls of the pound/dollar pair are in no hurry to celebrate the victory: despite the optimistic prerequisites, the risk of disappointment still remains. On the one hand, it is unlikely that Theresa May will be dismissed on the eve of key negotiations with Brussels. In the camp of the Conservative Party there are supporters and opponents of the “hard” Brexit, therefore, not all conservatives protested against the decision of the prime minister to maintain a significant level of European integration. Even the traditional critic of the premier Boris Johnson abstained (for the time being) from commenting on Davis’s resignation and at the moment did not follow his example. Theresa May, in turn fairly quickly found a replacement for the disgraced minister: Dominic Raab who is now responsible for Brexit in her government, who previously held the post of Deputy Minister for Regional Affairs and Local Government, and was formerly the Minister of Justice.
Personnel decisions calmed the market a little, but the bulls of the GBP/USD still do not rush into the battle: traders first of all want to assess the reaction of the British Parliament to the latest events, and then to assess the prospects of the relationship between Britain and the EU in the context of the updated “White Paper”. If after that the prospects of a “soft” Brexit take on a real form, the pound will receive a strong support. Otherwise, the pair will again be under pressure of uncertainty, returning to the area of annual lows.
In terms of technique, the GBP/USD pair has every chance to re-test the nearest resistance level – 1.3380, which corresponds to the upper line of the Bollinger Bands indicator on the daily chart. The next level is almost next to 1.3405 (the lower limit of the Kumo cloud on the same timeframe). Having consolidated above the above resistance levels, the pair will have a path to the upper boundary of the cloud, that is, to the area of the 37th figure. But it is too early to talk about this: political events can suddenly turn the pair to monthly and annual lows. London is faced with a choice between “hard” and “soft” Brexit, and the British currency, in turn, will determine the vector of its movement depending on who will win this confrontation.