"Contrary to growth": this is how the British currency's dynamics can be characterized last week. Almost all macroeconomic reports came out in the "red zone", demonstrating the recession of the UK economy. But not only did the GBP/USD pair not collapse to price lows, but also updated its high, completing the five-day trading within the 29th figure.
Such dynamics once again confirms the fact that the pair's downward impulse may be false - even a prolonged and multi-day price reduction should not be trusted. This is not the first precedent: at the end of October, the pair similarly decreased over several days, reaching a local low of 1.2790 - but then it turned sharply and returned to its previous price range. The dovish results of the Bank of England meeting also did not impress traders, despite the fact that two members of the Committee voted to reduce the rate. But even such a powerful fundamental factor could not reverse the trend: the GBP/USD pair froze at the boundary of the 29th figure.
The Brexit theme compensates for all the negative macroeconomic statistics. The likelihood of a Conservative victory in the early elections is growing, and accordingly, the likelihood of approval of the deal with Brussels is growing. For several years of a negotiating epic, the market first saw the "light at the end of the tunnel" - now there are more real chances to end the period of uncertainty than ever. That is why any positive news regarding the possible outcome of the election covers all the negative macroeconomic reports.
Yesterday's surge of optimism for the GBP/USD pair was also related to the topic of Parliamentary elections. Let me remind you that at the beginning of this week, Nigel Faraj of the Brexit Party announced that he would not nominate his candidates at 320 polling stations where members of the Conservative Party won the year before. At the same time, he promised that his party would actively fight with the main opponents of Boris Johnson - the Labour Party. According to Faraj, he will try to take away "as many mandates as he can" from them. This is good news for Conservatives, since almost 14% of the British were ready to vote for the Faraj party. Moreover, Johnson and Faraj "share" the same voters who prefer Brexit.The Brexit Party favors more radical scenarios, but if there are no representatives on the ballots, Faraj's supporters will vote more for the Conservatives than for other political forces.
After the decision of Faraj, the rating of the Conservative Party again crawled up. So, according to the results of polls from YouGov, 42% of voters are ready to support Conservatives in Parliamentary elections, while only 28% are ready for Labour. According to sociologists, the result is above the 40 percent mark Boris Johnson's party received for the first time since February of this year, that is, since when the Brexit Party was created. Since then, Johnson had to "share" the electoral preferences of supporters of anti-European politics. This survey was conducted after Faraj's decision to cede to the prime minister obviously victorious for the district's Conservatives. According to another survey - from the Panelbase research agency - Conservatives increased their lead over Labour to 13%. Johnson's party gained 43% (last week support was at 40%), while the Corbyn party remained with the same result at 30%.
Thus, Conservatives are gaining momentum, which means that the likelihood of approval of the deal in early January 2020 is growing every day. And although the specificity of the British electoral system does not allow us to speak about a guaranteed majority in Parliament now, the very trend allows the pound, if not grow, then at least hold on to its gained positions.
All other fundamental factors play against the British currency. Britain's GDP growth data, industrial production, inflation, labor market indicators - all these key economic indicators came out in the "red zone" (with rare exceptions), not significantly reaching forecast values. Therefore, the growth of the GBP/USD pair is limited, despite the almost 70 percent market confidence that Conservatives will take the majority in the House of Commons.
Summarizing the above, I note that the downward impulses of the pound-dollar pair must now be treated with extreme caution: macroeconomic indicators now "work" differently from normal times - the Brexit issue has an undeniable priority over other fundamental factors. At the same time, the pair has its own price ceiling - at the moment it corresponds to 1.2950 (the upper line of the Bollinger Bands indicator on the daily chart). Apparently, the pair will soon be trading in the 1.2770-1.2950 price range in anticipation of the election. If the positions of the Conservatives are strengthened, the pair may approach the 30th figure, but in this case the longs will already be risky.
