GBPUSD, BOE, BREXIT– TALKING POINTS
- GBPUSD may fall if BoE credit assessment sparks risk aversion
- Sour sentiment may be amplified by growing debt market threats
- Concerns about no-deal Brexit continue to mount, weigh on GBP
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Early into Thursday’s Asia Pacific trading hours markets were hit by the publication of Australian employment data which propelled the Australian Dollar and yet local front-end government bond yields aimed lower, indicating that markets were not convinced it would meaningfully cool RBA rate cut bets. It is unlikely that the marginally-impressive data will substantially put a dent into dovish monetary policy expectations. The recent publication of the meeting minutes suggests lower rates are ahead.
BOE CREDIT/LIABILITIES RISK ASSESSMENT, BREXIT RISKS PRESSURING GBP
GBPUSD traders may find themselves hot under the collar if the Bank of England’s (BoE) assessment of liabilities and credit conditions amplifies additional uncertainty about the UK’s financial stability. If the survey finds debt risks are tilted to the downside, it could dampen sentiment and make traders shift from chasing returns to seeking liquidity. In this regard, the US Dollar reigns supreme and could experience capital inflow.
Furthermore, regulators, politicians and central banks have become more vocal about monitoring the risks associated with growing debt. The prospect of a credit bubble burst has now become an alarmingly-comfortable threat that may destabilize financial markets after 10 years of ultra-low rates. A recent report found that commercial property mortgages are once again being collateralized into income-generating assets.
The headline risk for GBP traders continues to be the UK-EU divorce, and Sterling’s recent decline against most of its major counterparts has moved in tandem with growing fears of a no-deal Brexit. This week UK Lawmaker Grieve sent shivers up the spine of Sterling traders when he stated that blocking a hard-Brexit may be more difficult than anticipated.
GBPUSD TECHNICAL ANALYSIS
On July 16, GBPUSD dropped just short of one percent and is slowly recovering after reentering a critical support channel (red parallel channel). The outlook for upward movement does not look promising with the next possible ceiling at 1.2604, over 1.35 percent higher than where it is now. A breach below the downward-sloping support zone with follow-through may result in a rapid selloff as a result of broken hope for the upside.
CHART OF THE DAY: GBPUSD HOVERS AT CRITICAL SUPPORT CHANNEL
GBPUSD TRADING RESOURCES
— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter