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British pound price forecast for October 06 2020

2020-10-06

2020-10-06

Pound’s game is worth it. Forecast as of 06.10.2020Dmitri Demidenko

The [GBPUSD][1] bulls have new allies, the US Democrats. If the UK fails to strike a deal with the EU, they promise to block the trade deal with the UK. Let us discuss the prospect of the sterling and make up a [GBPUSD][1] trading plan

Fundamental Pound forecast for this week

Whoever’s here is here, whoever’s not is not. Entering [GBPUSD][1] longs on the breakout of the [resistance at 1.2925-1.293][2] was a risk, but the price is already breaking out level 1.3 and the bulls are willing to continue the rally. Yes, there hasn’t been great progress in the UK-EU talks, but the sides are willing to continue negotiations. On the contrary, the British Prime Minister Boris Johnson and the President of the European Commission, Ursula  von der Leyen , are willing to come to an active stage of the negotiations. The sides are moving towards a Brexit deal, which encourages the sterling buyers.

The pound’s state seems to be worse than ever. About 80% of jobs in Britain are created in the services sector (in Germany – 72%, in France – 78%), which is the most damaged by the COVID-19 industry. Furthermore, the expiration of the HM Treasury’s leave extension programs could raise the number of unemployed to more than 3 million. Unemployment has already reached the levels it had during Margaret Thatcher’s shock therapy and is likely to continue rising. The labor market again decides who will stay up.

The UK economy was seriously hit by the pandemic. It will hardly recover before 2023, which gives the MPC reasons to discuss negative interest rates. Investors expect the BoE to cut the interest rates below zero by August 2021 and to boost the QE by the end of 2020. So, it is surprising that the UK services PMI grew up to 56.1 in September amid the exhaustion of the fiscal stimulus, the second COVID-19 wave associated with new restrictions. The actual data were better than expected by Bloomberg experts.

Dynamics of UK services PMI

Source : Bloomberg

After all, the major growth driver for the [GBPUSD][1] has been politics, rather than the positive economic data. Boris Johnson’s willingness to go all-in using issuing the internal market bill and cancel some provision of the UK-EU deal signed last year would seem to ruin all the hopes for a Brexit deal. The risky game of the UK Prime Minister has been worth it so far. Markets believe that Johnson will rather cancel the document violating the norms of international law than abandon the chance of a Brexit deal.

Especially since a no-deal Brexit could have negative consequences for the UK. Joe Biden and the Democrats in the US Congress said they would block the deal with the UK if it does not abandon the domestic market legislation. If earlier Boris Johnson counted on Donald Trump, now he needs to take into account the risks of his defeat in the elections. The growing risks weaken the dollar and support the pound.

Weekly [GBPUSD][1] trading plan

I believe the [GBPUSD][1] will continue jumping up and down in the short run. This results from political matters both in the UK and the US and is confirmed by the rise in the sterling’s monthly volatility. However, the three-month indicator is going down, and the demand for the pound call opinions is growing, which suggests the buyers’ optimism. If the pair breaks out the resistance at 1.3-1.301, we could add up to the longs.

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Price chart of GBPUSD in real time mode

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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  1. my.liteforex.com/trading/chart?symbol=GBPUSD&returnUrl=true
  2. www.liteforex.com/blog/analysts-opinions/pound-escaped-from-the-scaffold-forecast-as-of-29092020/
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