The pound closed the trading week with significant growth, reaching the border of the 29th figure. The British currency reacted to the rumors that London and Brussels will resume dialogue on the fate of the Brexit deal. And although all previous attempts to find a compromise ended in failure, this news still affected the GBP / USD bulls.
During the weekend, the rumors were confirmed: This week, Theresa May will meet not only the President of the European Commission, Jean-Claude Juncker, , but also with the leaders of all EU member of different countries. The meetings will be attended by the main negotiators of the EU and the UK, Michel Barnier and Stephen Barclay. Before going to Brussels, May sent a letter to the members of the Conservative Party, in which she promised to seek changes from the EU authorities in the Irish backstay. She also urged her party members to unite and "sacrifice their own preferences for a higher goal."
This is not the first letter addressed to the Conservatives. But in the context of recent events, his rhetoric suggests that May is far from confident in the success of his European voyage. It is known that the prime minister will discuss several compromise proposals with Europeans, the authors of which are British conservatives. In general, their essence boils down to avoid the introduction of the "backstop" mode into action.
But a compromise is always a bilateral concession, thus, it is not surprising that the prime minister is preparing the reason for the fact that London's demands will not be fully met (this is at best). As May asks, it is still an open question whether the British parliamentarians are ready to "step over themselves."
On the one hand, the hawks continue to criticize government actions, whereas the approval of the transaction requires the votes of all conservatives in parliament. On the other hand, there are only 40 days left to Brexit, and there are no real alternatives to the proposed deal.Theresa May managed to cut off all the other (main) options in a few months - a repeated referendum, postponement of the British exit from the EU, resignation of the government and early elections. All of these scenarios have recently been considered "workers", but at the moment, their implementation is extremely unlikely.
In other words, it is too early to write off the "soft" Brexit option: by agreeing to additional negotiations, Brussels can make more substantial concessions that will make it possible to find a compromise solution. Unfortunately, the date of the meeting between May and Juncker is unknown (but it is known for sure that it will take place this week). However, the date of another important event is known - on Tuesday, February 19. The Attorney General of England and Wales, Geoffrey Cox, will inform the British parliamentarians about the amendments that need to be made so that Britain would not be tied to the back-stop regime forever. The results of this vote may affect the dynamics of the pound, although the main attention of traders will be focused on events in Brussels.
Despite the importance of political events, macroeconomic statistics should also not be ignored. Friday's retail volume data in the UK supported the pound. In January, the indicator came out of the negative area, reaching one percent on a monthly basis. In annual terms, the indicator showed similarly strong dynamics, reaching 4.2%. Without taking into account the cost of fuel, the indicator also accelerated - up to 1.2% in monthly terms and up to 4.1% - in annual terms. This is the strongest growth rate (if we talk about annualized terms) since May 2017. After the disappointing data on the growth of British inflation, this release has allowed to hope for the recovery of the consumer price index, and accordingly - to tighten the rhetoric of members of the Bank of England.
According to general expectations, the English regulator will increase the interest rate by the end of this year - but the final decision on this issue will be made after the completion of the epic with Brexit. Nevertheless, the growth of key macroeconomic indicators is important in the context of monetary policy prospects. Therefore, data on the UK labor market, which will be published on Tuesday, may provoke an increased volatility for the gbp / usd pair. According to preliminary forecasts, the unemployment rate will remain at the same record low of 4%. The number of new applications for unemployment benefits will be reduced to 12 thousand (from the previous 20 thousand). f the release comes out at least at the forecast level, this will provide additional support to the pound (unless, of course, the "news from Brussels" is not disappointing).
In terms of technology, the pair has the potential for further correction to the level of 1.2985 (located in the middle line of the Bollinger Bands indicator on the daily chart). Support levels are located at two elevations - 1.2760 (the bottom line of the Bollinger Bands) and 1.2625 (the lower boundary of the Kumo cloud). But here, it is worth noting that the news background regarding the prospects of Brexit is capable of "redrawing" the technical picture, especially if the price movement is impulsive.
The material has been provided by InstaForex Company - www.instaforex.com