GBP USD Bears break their fast on Brexit fears

The theme of today’s European session trade was undoubtedly risk aversion, with every major European equity bourse losing ground, bond yields generally rising, and oil losing another 2+% thus far. As often happens in markets though, the big catalyst for today’s trade is not what most traders were expecting.

Heading into today, most market participants were keyed in on today’s US economic data and preparing for the Federal Reserve’s announcement tomorrow. As it turns out though, today’s US reports were a bit of a dud: both the PPI (-0.2% m/m) and Retail Sales (-0/1% m/m) came out exactly as expected.

What wasn’t expected however, was the release of an opinion poll in The Telegraph, a conservative UK newspaper. The exclusive poll showed a 49% plurality of all voters favored the "Leave" position, compared to 47% in favor of remaining in the EU. When restricted to voters who were "definitely planning on going to the polls," the Leave campaign was ahead by a 52%/45% margin. In other words, The Telegraph’s poll suggests that there is a clear enthusiasm gap in favor of leaving the EU.

Technical View: GBP/USD

While more sober analysis suggests taking a single poll from a pro-"Leave" paper with a large grain of salt, jittery traders opted to sell first and ask questions later. As the chart below shows, GBP/USD is trading off nearly 300 pips from the high late last week and has broken below its 3-week bullish channel. After today’s stark reminder of the looming uncertainty in the UK, rates are testing the nearly 2-week low in the lower 1.41s. As for the secondary indicators, the 4hr MACD is trending lower below both its signal line and the "0" level, showing bearish momentum, while the 4hr RSI is not (quite) in oversold territory yet.

Moving forward, this week’s upcoming economic data (below) should drive the near-term swings in the pair. If the data shows that the growth gap between the US and UK is widening, GBP/USD could break 61.8% Fibonacci support in the 1.4060 area on its way back down to the upper-1.30s. On the other hand, some reassuring UK data (and/or disappointing reports from the US) could lead to a bounce in GBP/USD back toward above 1.4200 or toward 1.4300 next. Over a medium-term horizon, it will be difficult for GBP/USD to stage a rally back above the 1.50 level as long as the prospect of a Brexit remains credible.

Key economic data/news that could impact GBP/USD this week (all times GMT):

Wednesday: UK Employment Report (9:30 GMT), UK Budget release (12:30), US CPI and Building Permits (12:30), Federal Reserve Statement, SEP (18:00) and Press Conference (18:30)
Thursday: BOE Monetary Policy Decision (12:00), US Philly Fed and Initial Jobless Claims (12:30 GMT)
Friday: US UofM Consumer Sentiment (14:00)

Source: FOREX.com

For more intraday analysis and market updates, follow us on twitter (@MWellerFX and @FOREXcom)

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

Contracts for Difference (CFDs) are not available to US residents.

FOREX.com is a trading name of GAIN Capital - FOREX.com Canada Limited, 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA is a member of the Canadian Investment Regulatory Organization and Member of the Canadian Investor Protection Fund. GAIN Capital – FOREX.com Canada Limited is a wholly-owned subsidiary of Stonex Group Inc.

Complaints are taken very seriously at FOREX.com. You can view our complaints procedure here.

Know your advisor