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On today's agenda, traders in the GBP / USD pair have two questions, Brexit and the growth dynamics of the British economy. The topic of the "divorce process" has an undisputed priority, however, macroeconomic indicators should not be overlooked. If the Brexit epic ends in a civilized way, then the rate of monetary policy tightening by the English regulator will depend on the incoming data.

In general, today's release did not impress traders. And although the GDP of Britain turned out to be slightly stronger than expectations, the volume of industrial production completely leveled the positive effect. Thus, the British economy grew by 0.2%, while the forecast was more modest (0.1%). And although the positive dynamic is truly modest, the trend itself is important. We are seeing consistent growth. In August and September, the indicator was at zero, in October it grew by 0.1%, and in November, by 0.2%. Quite a good result, given the fluctuations in PMI indices over the past six months.

Exchange Rates 11.01.2019 analysis

The data on the volume of industrial production frankly disappointed. The indicator remained in the negative area, both on a monthly and annual basis. In November, the indicator was at the level of -0.4% (m / m) and -1.5% (g / g). In annual terms, the indicator even set an anti-record. The last time the index was at such lows in October 2013. Also today, data were released on the UK trade balance for November, the negative balance of which rose to 12 billion pounds (in October the figure was 11.9 billion).

Despite such contradictory figures, traders did not begin to dramatize the situation, focusing on the positive dynamics of British GDP. In addition, at the moment the pair is fully focused on the upcoming vote in the British Parliament. Some support for the GBP / USD pair was provided by the comments of European Commission President Jean-Claude Juncker, who said that "every effort must be made to accept the Brexit deal," while the chaotic exit of the country from the EU "will be a disaster". This is rather unexpected rhetoric of Juncker, because literally the day before yesterday, during a telephone conversation with May, he again voiced to the British prime minister the thesis that "there will be no new negotiations on the deal."

Today, traders literally jumped at the phrase of the EC Chairman. Now, any hint of the implementation of the "soft" Brexit is worth its weight in gold, as the most disturbing signals have recently entered the market. For example, the amendments to the tax legislation adopted the day before yesterday indicate the number of Theresa May's opponents, both among Labor and among conservatives. Against this background, key European countries announced "readiness No. 1", awaiting the chaotic Brexit. In particular, today the German Chancellor Angela Merkel said that Germany has developed a detailed action plan in case of the implementation of this scenario. Earlier, similar statements were made by the representatives of Austria, France, and other EU countries.

Exchange Rates 11.01.2019 analysis

That is why the position voiced by Juncker resumed hopes for a compromise. Let me remind you that in early January there were rumors in Britain that Theresa May's team was developing a plan according to which Parliament would approve the deal but on condition that the European Union would give additional concessions. In this case, the final decision on the transaction will have to be taken by Brussels. That is, the fate of the "divorce process" will depend on Europe.

This scenario has one significant vulnerability. If Brussels will continue to follow its previously voiced position (no negotiations under any circumstances), then there is no point in such a decision of the British parliament. For this reason, today's comments by Juncker caused such a stir among GBP / USD traders. By and large, he did not rule out the likelihood of this option being implemented and this fact eclipsed all of today's macroeconomic releases. According to rumors, the EU is still going to provide the UK with guarantees regarding the Irish backstop.

However, I still recommend trading with particular care with a pair of GBP / USD, especially today. The position of the head of the European Commission requires further clarification, whereas at the weekend the situation may change dramatically (in particular, May may again postpone the vote or postpone the exit of the country from the EU). Also, we should not forget that during the American session, there will be a release of key data on the growth of inflation in the United States. Such a saturated fundamental background can provoke an increased volatility over a pair of GBP / USD, whereas it is almost impossible to predict the price direction vector in such conditions.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Performed by Irina Manzenko,
Analytical expert
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