What happened yesterday with the pound can only be called euphoria, or ecstasy. No other epithets will reflect the fullness of emotions that forced traders to buy the pound en masse. This is the only way to describe the market reaction to the results of the meeting between Boris Johnson and Leo Varadkar. The prime ministers of Great Britain and Ireland were extremely optimistic about the meeting, and said that great progress had been achieved that would allow the resumption of negotiations between London and Brussels as soon as possible, as well as achieve mutual understanding on the divorce deal. That alone was enough for the pound to jump a little over two hundred points.
However, there is no doubt that the pound's growth is solely due to emotions. Neither Boris Johnson, nor Leo Varadkar, revealed the exact issues on which they found a compromise. But most importantly, this does not mean that Brussels will agree to take into account the agreements reached. Especially if they contradict the basic principles of the same agreement, which the House of Commons has already rejected three times. First you need to resume negotiations between London and Brussels, and today the meeting is scheduled for the main negotiator on the part of the European Union, Michel Barnier, and Brexit's Minister for Affairs, Steve Barclay. They should outline a plan of action for the early conclusion of a divorce agreement between London and Brussels. So the process is clearly delayed, and will not be so swift. You can be absolutely certain that it will not be easy.
Moreover, if we look at the statistics, the pound's growth, to put it mildly, was somewhat unreasonable. The fact is that the state of industry in the United Kingdom, at the very least, is worrying. Yesterday's data showed that the decline in industry deepened from -1.1% to -1.8%. The negotiations can inspire optimism and hope as much as you like, but in fact, the real state of affairs in the economy, just terrible, and it would be better if all these high-level meetings have begun to bear real fruit.
Industrial Production (UK):
There are no releases of macroeconomic today. So investors will have a great opportunity to carefully look at the real state of the British economy. No one will be pleased once it is clearly seen. Just another streamlined phrase about moving in the right direction, without any specifics, also somewhat reduce the optimism that was caused by yesterday's meeting of Boris Johnson and Leo Varadkar.
The GBP/USD pair once again found a foothold in the face of the value of 1.2200, slowing down and, as a fact, bouncing in the opposite direction. The volatility of the past day was extremely high amid the information flow, as I wrote above, as a result of which the quotation flew to the value of 1.2467, where it slightly slowed down. Looking at the trading chart in general terms, we see that an oblong correction is still being maintained in the market, with the price almost returning to a peak.
It is likely to assume that this kind of impulsive move has greatly overheated long positions, and a stop with a subsequent recovery move can be expected in the region of the available coordinates.
Concretizing all of the above into trading signals:
- We consider long positions in terms of residual reaction, where in case of price consolidation higher than 1.2470, we can head towards 1.2500.
- We consider short positions in terms of recovery, where within the range of 1.2415-1.2410, you can think about positions in the direction of 1.2380 -> 1.2350.
From the point of view of a comprehensive indicator analysis, we see that the indicators against the background of a recent surge in prices, all together turned upside down to signal purchases. It is likely to assume that in the event of a slowdown and subsequent recovery, we will see changes in indicators, starting from the minute interval.