The pound-dollar pair demonstrates a large-scale correction by today's standards, rising by 100 points in a few hours at once. After a two-day steady decline, this rebound was impulsive in nature, although this impulse faded rather quickly - the price barely touched the first resistance level of 1.2530 (the middle line of the BB indicator on the daily chart). Any corrective growth in a pair of GBP/USD is a kind of gift for those who play against the British currency - and such, apparently, the vast majority. Indeed, such price movements should be used to open short positions - at least in the medium term, while political uncertainty will put pressure on the pound.
It is noteworthy that today's correction is not due to British events, but to the weakness of the US currency. The market completely ignored the formal victory of Boris Johnson in the election of the leader of the Conservative Party, as well as the subsequent resignations of government ministers Theresa May. These events were too predictable and long expected, given the popularity of Johnson among ordinary conservatives. Therefore, the market won back his victory long ago - even when his main opponent (Jeremy Hunt) fell behind the leader of the political race by several tens of percent.
The rhetoric of the new prime minister of Britain also did not surprise investors - he again repeated those theses that had become the talk of the town, above all about the need for the country to leave the EU on October 31. Traders did not learn anything new and, therefore, ignored this speech. Obviously, the market will now focus on political battles between the Johnson government and members of the House of Commons, because most parliamentarians (including Tories) do not support the idea of implementing a "tough" Brexit.
There are several options for further action as the prime minister and the parliament. Experts do not rule out a new referendum, a new general election, or a no-confidence vote for Johnson. The essence of the future confrontation (which will inevitably take place) is who will defeat whom by law. The current composition of the House of Commons will by all means prevent the implementation of the "hard" Brexit without the approval of the deputies, forcing Johnson to take into account the views of parliamentarians. However, the prime minister will have to solve a difficult dilemma - whether to decide on an extraordinary general election (given the low rating of conservatives) or negotiate with the current composition of the House of Commons. But the main events in this vein will unfold somewhat later - and in the near future, Johnson will form his team, preparing for the main battle in the national parliament and Brussels.
That is why today's and yesterday's statements of Johnson, who de jure became the head of the government, did not affect the mood of the traders of GBP/USD. But the weakness of the dollar allowed the pair of bulls to update this week's high, rising to the level of 1.2530. The US currency was under pressure from major US stock indices today, which, in turn, opened in the red zone due to weak reports on corporate profits of Boeing and Caterpillar. The aircraft manufacturing company received a net loss of $ 2.9 billion in the second quarter of the current year, while Boeing received a net profit of $ 2.2 billion in the same period last year. The company's quarterly revenue fell by 35%. Such negative dynamics is associated with large write-offs due to the suspension of flights of 737 MAX aircraft (after two deadly catastrophes).
In turn, the net profit of heavy equipment maker Caterpillar, fell by almost five percent due to lower demand for construction equipment in Asia (the effects of the trade war), as well as weak sales in the energy and transportation division.
In addition, the market reacted negatively to the news that the US authorities decided to conduct an antitrust investigation against such giants as Google, Amazon, Apple and Facebook. If, as a result of the investigation, restrictions are imposed on these companies, then Internet heavyweights will have less opportunities to earn money.
Against the background of an almost empty economic calendar, these factors played a role for dollar pairs - to one degree or another. However, the reduction of the greenback is limited, especially on the eve of the release of data on the growth of the American economy and the July Fed meeting. In other words, we are dealing with a short-term corrective movement, which is unlikely to receive its continuation. And given the fact that the growth of GBP/USD is due only to the weakness of the US currency, it can be assumed that the pair will return to the base of the 24th figure in a short time.
The material has been provided by InstaForex Company - www.instaforex.com