GBP/USD forecast for 23.07.2020

July 23, 2020

GBP/USD forecast: Pound is on a thin iceDmitri Demidenko

Fundamental Pound forecast for today

It is very risky to buy the GBP/USD on the UK strong PMI data, but

it can yield a high profit in case of success

Sterling is a kind of allegory that proves the importance of distancing during the pandemic. The UK has broken ties with all its partners. There are disputes with the EU over Brexit, with China – over Hong Kong, with the US - over the UK’s unwillingness to facilitate the access of the US companies to the British agricultural market, with Russia - because of its alleged interference in the referendum on Scotland independence. Nonetheless, the [GBP/USD][1] is growing in price, which could prove that the breakup of the political and economic ties has a positive impact on the UK. It is a paradox? It may be, but the pound seems to benefit from paradoxes.

The [EUR/USD][2] major growth drivers are the divergence in the economic growth, the capital outflow from the USA into Europe, and the increase in the euro’s share in the global central banks’ FX reserves. The pound, however, doesn’t have such advantages. The German stock index [DAX30][3] is about to enter the green area for the first time since the year’s beginning, and the EuroStoxx 600 capitalization has been up from March’s high by $3.5 trillion. The [FTS100][4], however, has been 17% down since January. According to BofA Merrill Lynch, the UK is the least favorite place in the world for asset managers. Scotiabank has found net short speculative positions in only two currencies. The sterling is one of them.

U.K. stocks compared to the global stocks

![LiteForex: GBP/USD forecast for 23.07.2020][5]

Source: Bloomberg

The UK economy is also weak. Its slow recovery trend gives a reason to expect the BoE interest rate cut below zero and the expansion of the UK QE. Great Britain could have received the EU funding as one of the most affected by COVID-19 European countries, but Brexit has destroyed such an opportunity. The country has to solve its economic problems without any assistance.

Forecasts of the UK GDP

![LiteForex: GBP/USD forecast for 23.07.2020][6]

Source: Bloomberg

The major advantage of the [GBP/USD][1] bulls is the weak dollar, rather than the strong pound. A small rise of the[ EUR/GBP][7] confuses me a little. In my onion, it results from the hopes for a Brexit deal and the realization of the market principles. When there is too much negative in the market, any positive news bit can encourage the bears to exit the shorts. If the UK PMI data are better than Bloomberg experts expect, the sterling can well break through the June’s high versus the US dollar.

Boris Johnson is unwilling to make concessions in response to the EU’s concessions on rights to fish, the supremacy of the European Court of Justice, and state subsidy mechanisms. However, people familiar with the matter say the UK Prime Minister is willing to strike a deal. If there is no deal, it will be not just another blow to his reputation after the denial of COVID-19, it will also increase the likelihood of another referendum on Scotland’s independence.

In my opinion, the hope for the Brexit deal concluded at the last moment amid the greenback’s weakness can push the[ GBP/USD][1] up to1.29. The risk of the fall will be rising with the pair’s growth. Therefore, one could take a part of the profits from the pound longs entered at levels $1.2535 and $1.255.

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Price chart of EURUSD in real time mode

![GBP/USD forecast: Pound is on a thin ice][10]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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