GBP Fundamental Forecast: Positive Backdrop, Bullish Outlook
STERLING (GBP) TALKING POINTS:
- Brexit continues to shift towards a soft outcome as No Deal is priced-out.
- Positive sentiment and supportive technical fuel the rally.
Fundamental Forecast for GBP: Bullish
We have changed our Sterling outlook to bullish for the near-term and would take a positive bias on sell-offs in the current climate. While Brexit retains the ability to generate an unexpected headline or two, wrecking even the best made plans, the overall sense is that a Soft Brexit is the most likely outcome and there is now a hardened opposition against the UK leaving the EU without a deal. The Irish Border question still has not been answered but it seems - according to media reports - that UK PM Theresa May has talked the DUP around to voting for her Plan B, suggesting that a solution has been found to this long-running problem.
Across the board GBP has had a good week, hitting multi-week and multi-month levels. As we write, the market has erased a small portion of these gains, but this is a natural occurrence in a strong market and provides another positive signal for Sterling. We have looked at various GBP-pairs over the week and the levels and bias remain intact despite today’s book squaring. In addition to the three pairs below, GBPJPY and GBPCAD also provide opportunities going forward.
3 Sterling (GBP) Pairs Traders Should Watch as Brexit Talks Continue.
Sterling also received a small uplift this week from better-than-expected UK jobs and wages data, that suggest that BoE Governor Carney will be busy if/when the Brexit is resolved. Next week, PM May’s Plan B is put before the House and the vote will provide more information on the swing towards a soft Brexit. The economic calendar shows no high impact data releases in the UK market.
GBPUSD DAILY PRICE CHART (MAY 2018 – JANUARY 25, 2019)
IG Client Sentiment data show 47.9% of traders are net-long GBPUSD. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests that GBPUSD prices may continue to rise. However, the combination of recent daily and weekly positional changes gives us a stronger bullish contrarian bias.
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