GBP/USD – The pair for the global recovery?
GBP/USD – the pair for the global economy?
Two main fundamental factors depressed the GBPUSD for the past couple of years—Brexit, and now recently, the Coronavirus.
The trade is relatively simple – once there is a vaccine for the Coronavirus, alongside certainty on Brexit talks, a good case can be made for the pair to reach its Pre Brexit/Pre Coronavirus levels around 1.45
Pound needs to meet two catalysts to hit 1.45
Let’s go over the technical first. A Fibonacci drawn from 1.34 to 1.15, from the 2019 high to the 2020 low, can see the level of 1.45, hitting perfectly with the 161.8% retracement level, which was the level before the Brexit referendum results were announced in 2016. Alongside predicted further weakness in the US dollar, as vaccine hopes rise, the pound may rally on relatively less stimulus to its US counterpart.
We can also see some consolidation zones and congestion around 1.32 and 1.38, where bulls and bears fight it for a higher or lower move. However, movements to the upsides past these zones paired with positive fundamental news may see price levels freely hit strong Fib levels. A robust full recovery, with pre-Coronavirus level economic activity alongside a positive post Brexit environment, and we can see levels hit 1.50 – 1.55.
Brexit – time is running out, risky for the Pound
It has almost been five years since the Brexit referendum took place—a quick refresher on why Brexit occurred. There were talks amongst the public that they were getting the short end of the stick regarding the European Union and that the majority of the citizens in the UK wanted to leave. The Prime Minister at the time, David Cameron, disagreed with the notion that the UK public wanted to leave. Therefore, he initiated a referendum to show that the UK did not want to leave the European Union. It turns out he was wrong, and they did want to leave. David Cameron retired soon after.
Five years later, and we’re edging closer to a deal. Brussels and the UK have started in-depth negotiations again after the Coronavirus ravaged the world. A “deadline” has been set for 31st December, where Britain will “leave” the EU regardless of whether a deal has been met. However, “deadline” is in quotations as both have agreed to extend deadlines that have passed many times before.
An EU official has stated that “its getting terribly late and may be too late already” and that “they [the EU and the UK] haven’t quite reached where they had hoped to be.” If a “no deal” Brexit occurs on 31st December, shock waves will be sent not only in the financial markets but also supply chains all across Europe and the UK. There is currently free trade and free transport out of the UK and into Europe and vice versa. However, a no-deal Brexit would mean that on the 31st December, the EU will treat the UK like any other country.
A no-deal Brexit should see the pound drop to a similar magnitude of that in 2016. However, if the optimistic scenario occurs and a vaccine comes alongside positive Brexit negotiations, we should see the pound rally against the US Dollar.
Gold continues to fall on positive vaccine news, as both Pfizer and Moderna reveal trials that show 90%+ efficacy vaccines against the Coronavirus.
Gold breached a fundamental Fib level at $1,835, looking for a next internal support/resistance level at $1,800 and the 50% retracement level at $1,761.
As the news cycle slows, with the election in the past alongside initial vaccine hype fading away, it is essential to realize that not only is the Coronavirus continuing to ravage the economy, it continues to ravage the families and lives of many around the world.
Many have turned the Coronavirus into a statistical exercise, looking into the future when we eventually look past the Coronavirus. However, it is currently a present problem, with present consequences. Keep this in the back of your head when you trade and invest. Here is your week ahead.
With the vaccine on the horizon, I was thinking about an industry that should indirectly benefit from an increase in worldwide economic activity. For example, we can safely assume that airline equities will rally on the back of confirmation of a working vaccine. However, ancillary services to airlines should follow through with the airline rally, for example, companies who make the food for the airlines or airports.
Black Bull Group Limited (trading name: BlackBull Markets) is a New Zealand registered and incorporated company (company number: 5463921).
We are also registered with the Financial Services Provider Register (number: FSP403326).
Black Bull Group UK Limited is registered in United Kingdom, Company Number - 9556804. Payment clearing services provided by: BlackBull Group UK Limited (Company Number - 9556804) Address - 483 Green Lanes, London, Greater London, United Kingdom, N13 485
Risk Warning: Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange, you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and, therefore, you should not invest money you cannot afford to lose. You should make yourself aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any questions or concerns as to how a loss would affect your lifestyle.
All payments related to the Paysafe Group are facilitated by Black Bull Group Limited.
Copyright © 2019 Black Bull Group Limited. All Rights Reserved.