Pound hates uncertainty
December 3, 2018 1:22 pmVideo
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Markets hate uncertainty, and Brexit has it in abundance. That is why, despite the improvement of the political landscape, the British pound closes in the red zone for the third week in a row and lost about 3% against the US dollar. This is in terms of the pigeon rhetoric of Jerome Powell and the de-escalation of the US-Chinese trade conflict! If not for them, the GBP / USD pair would have overcome support at 1.27 a long time ago. However, the “bears” are still ahead. Until December 11, the dates of the historic vote on the draft treaty with the EU on the “divorce” in parliament, sterling volatility will increase, and with it, the chances of a continuation of the peak.
Until Theresa May made a deal with the EU, the pound fell on expectations of her absence. Then, on fears due to the resignation of ministers. A little later, on fears because of a vote of no confidence in the leader of the Conservative Party. Now, on the risks of a document rejecting by parliament. According to a Bloomberg expert survey, there is a 55% chance of such a scenario. However, is it worth worrying about this? If May’s successor fails to find a way out as soon as possible (which is unlikely), the country will face either the “Norway +” option (maintaining relations with the EU and freedom of movement) or a second referendum. The chances of the latter, as evidenced by the bookmakers, grow by leaps and bounds and reached 40%.
Dynamics of the likelihood of a second referendum in Britain
Yes, the prime minister has a difficult task, to get the support of 320 legislators, but the fact that the Bank of England and the Treasury studies indicate a deep economic crisis in the event of an indiscriminate Brexit may influence the position of parliamentarians opposing the Theresa May plan. As for the “Norway +” option, it’s the only one according to which Foggy Albion will avoid a recession. However, high volatility will not disappear anywhere, which plays against the pound.
Sterling floats on political waves and stopped paying attention to macroeconomic statistics. Even the acceleration of business activity in the manufacturing sector in Britain in November from 51.1 to 53.1 did not render much support to the bulls on GBP / USD. The economic calendar of the first week of December contains two more releases of data from purchasing managers (in construction and in the service sector). However, investors are so obsessed with voting in parliament and related polls of bookmakers and experts from Bloomberg that they are likely to ignore these events.
Another thing, the statistics on the US labor market in November. After Jerome Powell’s words about the Fed’s focus on incoming data, frustration with employment, unemployment, and average wages can be expensive for the US dollar. On the contrary, strong numbers will allow him to perform a swan song. Investors are seriously determined to sell the USD index after the December FOMC meeting, a short-term growth rate will benefit them.
Technically, quotes of the GBP / USD pair beyond the triangle and support breakthrough by 1.27 and 1.265 activates the AB = CD pattern and will increase the risks of realizing its target by 161.8%.
GBP / USD, the daily graph
The material has been provided by InstaForex Company – www.instaforex.com
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