Forecast for GBPUSD for 29 July 2020

July 29, 2020

Forecast for GBP/USD: Pound caught enemies in a lieDmitri Demidenko

Fundamental forecast for pound for today

GBP/USD bulls have been told that the British economy is bad and the

Brexit negotiations are deadlocked

Markets tend to fall when Euphoria gives way to Disappointment and rise when the future turns out to be not as bleak as they are being told. A notable example is the British Pound, which soared to its highest level since early March against the US dollar and strengthened against the euro, although it did not have such a powerful trump card as the EU’s approval of the Franco-German proposal for a fiscal stimulus. The explanation for this may be found in the fact that there are too many bears in the market: speculators were building up net-short positions in sterling in the week of July 21 but hung the white flag as soon as they smelled something fishy.

In the middle of July, the pound was the most paradoxical currency in Forex. Brexit negotiations stalled, modest 1.8% GDP growth in May indicated a slow recovery in Great Britain forcing the BoE hawks into a corner, exacerbated the risks of repo rates falling below zero, and pushed the U.K. bond yields to historic lows.

Derivatives market forecasts for the repo rate

![LiteForex: Forecast for GBPUSD for 29 July 2020][1]

Source: Wall Street Journal.

U.K. bond yields dynamics

![LiteForex: Forecast for GBPUSD for 29 July 2020][2]

Source: Wall Street Journal.

External factors, such as the [S&P 500][3] rally and the weakness of the US dollar, were perceived as the main drivers of the [GBP/USD][4] rally, but at the end of July everything turned upside down. Retail sales growth of 13.9% MoM and the best dynamics of the U.K. Composite Purchasing Managers’ Index (PMI) since 2015 have given rise to rumours that the idea of a V-shaped GDP recovery has been buried in vain. Investors have been misled, and it seems, not only in the economy.

The tabloids argued that negotiations between London and Brussels were deadlocked but could the question be raised that way if progress in the areas of European Court of Justice supremacy and government subsidies was evident? The EU has backed down from tough demands, and Britain only needs to step forward to strike a deal. According to Reuters insider, Michel Barnier said during a closed meeting with national envoys that a new agreement with the U.K. is possible. Not only does Brussels need it, but London as well, no matter how much the latter speaks about the advantages of individual trade agreements with individual states. In fact, Bloomberg research argues that the benefits of maintaining access to the single market will be preferable to working on WTO terms.

Preferences of trade agreements

![LiteForex: Forecast for GBPUSD for 29 July 2020][5]

Source: Bloomberg.

Thus, the picture is gradually becoming clear: the state of the British economy is not as bad as it is believed, the Bank of England is unlikely to drop the repo rate below zero, and the interest in the deal of both the EU and the U.K. allows us to maintain faith in its conclusion, in early October if not in September. The pound has its own trump cards, which, coupled with the weakness of the US dollar, allow us to count on the continuation of the [GBP/USD][4] rally in the direction of 1.33 and 1.36 in 6 and 12 months. The main strategy is to buy the GBP/USD on pullbacks, the main risks of the strategy are the deterioration of the epidemiological situation in Europe and the inconclusive Brexit.

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Price chart of GBPUSD in real time mode

![Forecast for GBP/USD: Pound caught enemies in a lie][8]

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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