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British pound. Risks around BREXIT

Sep 9 2019, 07:21 PM (BDT) |

Good afternoon!

Last week the British parliament voted to force Boris Johnson to request a Brexit delay until January 31, 2020. Johnson reacted by trying to set up new elections on October 15th, but this step was blocked. On Monday the 9th Johnson stated that “I would overwhelmingly prefer to find an agreement” and that “a deal can be done by October 18.” Thus, it reminds us of the situation with the former British prime minister and her futile attempts to reach an agreement. We all know the results of this story. As we have already mentioned GBP will sensitively react to the situation. If Johnson succeeds in reaching an agreement with the EU the national currency will rise. Otherwise, in the case of breaking the appointed deadline (the 31st of October), GBP will highly likely react negatively. In our opinion, the second scenario is more probable. 

According to indices British economy continues to shrink. On Monday the 9th the Office for National Statistics published national GDP. The quarter over quarter index was released at 0% level. 

Picture 1. British GDP QoQ 

Manufacturing production in July rose by 0.3%, but YoY the index dropped by 0.6%. 

Tomorrow will be the second most important day for the British economy. The unemployment rate and British average earnings will be released. Hence it will affect the British currency.

As we mentioned one week ago GBP/AUD reached the support line at 1.78500 on 1D TF. Now we see some type of consolidation. 200-EMA is moving sideways. There are two possible options – if the movement up continues the first target will be 1.81000, after that we will see 1.82000. 


Picture 2. GDP/AUD 1D TF


GBP/USD (‘cable’) formed a Double Bottom pattern. The second bottom was formed and confirmed by the ‘hammer’ candlestick pattern. The target for the price was 1.23800. The next price target may become 1.26000. If you are an aggressive trader, we think that this correction could be used for scalping up but only after breaking the resistance level. But generally, the trend is still bearish and taking into consideration all risks we recommend for conservative traders to try to find signals down. The first preliminary signal down is the divergence between the MACD histogram and the price. 


Picture 3. GDP/AUD 1D TF

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