BRITISH POUND – The Brexit Clock is Ticking

BRITISH POUND – The Brexit Clock is Ticking

13 junho 2016, 04:15
Anderson de Carvalho Manilha Braga
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Data Review

  • Halifax House Prices 0.5% vs. -0.9% Previous
  • Industrial Production 2% vs. 0.3% Previous
  • NISER GDP Estimate 0.5% vs. 0.4% Previous
  • Visible Trade Balance -10.5B vs. -10.6B Previous

Data Preview

  • UK CPI – Potential upside surprise as rise in commodity prices should boost price pressures
  • UK Employment Report – Potential downside surprise given weakest service sector hiring in 33 months
  • UK Retail Sales – Need to see what wage growth looks like but potential upside surprise given rise in BRC retail sales & consumer confidence
  • Bank of England Rate Decision – No changes but cautious tone likely ahead of Brexit vote

Key Levels

  • Support 1.4000 then 1.3800 ultimately 1.3500
  • Resistance 1.4700

It was a difficult week for sterling. The currency traded lower for 4 out of the last 5 trading days and broke the lower bound of its wide 1.4350 to 1.4700 trading range. All of this week’s U.K. economic reports ranging from house prices, industrial production and the trade balance were better than expected but stronger underlying fundamentals failed to lend support to the currency. Brexit headlines have ruled sterling trade and we expect that to remain the case in the coming days. The clock is ticking and we are less than 2 weeks away from the E.U. referendum and the polls are still not showing any clear majority. Rallies in pound have been sold as everyone knows that the greatest danger for the U.K. economy, the British pound and financial markets around the world is Brexit. However with many banks and forex dealers raising their margins on GBP and other currencies ahead of the referendum, we could also see a nasty short squeeze before the vote. It will be a big week for the British pound for a number of reasons. Aside from the approaching Brexit vote, the U.K. has an exceptionally busy economic calendar that includes a Bank of England monetary policy announcement, UK consumer prices, retail sales and employment. For the past few weeks sterling completely ignored fundamental data and we would not be surprised if they looked past next week’s reports as well. The BoE is not expected to change monetary policy but the minutes will reveal a cautious tone as policymakers express serious reservations about providing an outlook in light of Brexit uncertainty.

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