The British pound realized that it went too high on incomprehensible optimism and therefore, the risks of profit taking on weak statistics in Britain are growing by leaps and bounds. The proof is the drop in the GBP/USD pair in response to disappointing data on business activity in the manufacturing sector. The figure fell to a three-month low, and companies were increasing their stocks at the fastest pace since the 1990s. They are obviously afraid of something. Is it a messy Brexit?
Strengthening of the sterling in response to Theresa May's plan, which was rejected by the Parliament, twice in various variations, looks like an anomaly. It would seem that we need to prepare for the withdrawal of Foggy Albion from the EU without a deal, especially since the lawmakers voted against the amendment to extend Article 50 of the Lisbon Treaty. In fact, investors believe that parliament will not allow Brexit to indiscriminate and extending the transition period is a matter of time. As a result, the two-month volatility of the pound fell to its lowest level in two years but after a couple of months waiting for us on March 29, the date of the official divorce.
However, until mid-February when the legislature holds another vote, the political landscape is unlikely to change radically, which allows investors to shift their attention to the events of the economic calendar. Many of them are not averse to taking profits after 2.5% of the GBP/USD rally since the beginning of the year, and weak statistics will enable them to do so. In this regard, the release of data on business activity in the services sector and the meeting of the Bank of England put forward the sterling for the role of the most interesting currency of the week.
The Central Bank will not envy. He bases his predictions on an orderly Brexit, and if something goes wrong, he will have to make corrections in an emergency. Bloomberg experts do not expect a repo rate increase at the February MPC meeting, but the presence of a split on this issue may support the bulls in GBP/USD. The derivatives market is gradually shifting the timing of the expected tightening of monetary policy to a later period than originally anticipated. Nevertheless, in conditions when competing for central banks decided to take a pause, rumors of a continuation of the BoE normalization cycle stretch a pound a helping hand.
Dynamics of the probability of increasing the repo rate
Everything is relative. The divergence serving faithfully and in 2018, the US dollars now plays on the side of its opponents. In this regard, it is doubtful that the correction of the GBP/USD pair to the upward short-term trend was delayed for a long time. Profit taking is a technical factor, a fundamental improvement in the political background and expectations of a repo rate increase act as important trumps of the bulls in the analyzed pair.
Technically, despite the pullback, pound fans leave no hope of reaching the target of 113% using the Shark pattern. In this scenario, the likelihood of the implementation of targets according to the "Wolfe Waves" model will increase. In this regard, a correction with a subsequent rebound from the supports for $ 1.302 and $ 1.2895 makes sense to use for purchases.
GBP / USD daily graph
