Forecast for pound price for 21 October 2020

2020-10-21

Pound: there’s always hope. Analysis as of 21.10.2020Dmitri Demidenko

The pound appears to have used a vaccine: it doesn’t react to negative Brexit headlines and believes that a no matter what deal will be signed. Let’s discuss that and make a trading plan for [GBPUSD][1].

Monthly fundamental forecast for pound

Both parties should make an effort to reach a result. The European Union and Britain understand the consequences of an economic breakup provoked by a no-deal Brexit. However, Boris Johnson’s behaviour has been provocative, and Brussels excuses that. Why? They know that the British PM has to gain the eurosceptics’ favour, which is hard to do. As a result, London’s loud statements are seen as nothing but showing-off. Investors don’t believe Johnson’s single word and the pound remains stable, even if the talks appear to have ended in a deadlock.

After the 2016 Brexit referendum, the traders grew immune to Brexit news. The same story repeated itself every year: one had to live through a hopeless period and then catch a chance at the last moment, exploiting the [GBPUSD][1]’s hike after breakout news. For example, that happened in autumn 2019, when Boris Johnson induced Brussels to sign an agreement, threatening not to extend the prolongation period. That will probable happen again now. That’s why Johnson’saying that Michel Barnier shouldn’t come to London without any constructive suggestions (i.e. concessions) is read as an artificial provocation.

The belief in a Brexit deal allows the pound to grow even amid the economy’s weakness and rumor of negative rates introduction. According to the Bloomberg’s leading indicators, the eurozone’s recovery is slowing down, the US is gradually catching up with Europe, and the UK is the worst preformer.

GDP recovery dynamics

Source: Bloomberg.

Thus, it’s unsurprising that member of Monetary Policy Committee Gertjan Vlieghe says openly he is ready to support a QE extension worth £745 billion, and demands a deeper study of negative rates’ impact on the economy.

Even Moody’s downgrade of the UK sovereign debt rating doesn’t help [GBPUSD][1] bears, although it’s supposed to withdraw money from the UK debt market. In fact, the rating is still above the junk level, and the BoE is buying out securities so passionately, that a price fall isn’t a discussion topic.

Donald Trump’s loss of reputation supports [GBPUSD ][1]bulls. According to Financial Times’ and Peterson Fund’s latest surveys, 46% of Americans think the current president’s policies harmed the economy. Thus, market pessimists prevail, for the first time since the beginning of 2020. Before COVID-19 locked down the States in March, the optimists had a 11-point advantage.

Range of opinions of Trump’s influence on economy

Source: Financial Times.

A solid economy is perhaps Trump’s most powerful argument for re- election. If he’s losing his ground there, the White House may be expected to change its tenant. And investors got used to the fact that what is bad for Trump is bad for the dollar too.

Monthly trading plan for [GBPUSD][1]

A Brexit deal and the US Blue Wave may have brought [GBPUSD][1] to 1.34 as early as by mid-November. Continue buying the pound at pullbacks.

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Price chart of GBPUSD in real time mode

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