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Nicolas
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Bulls need to defend 1.2800 level

The GBP/USD pair extended its recent bearish correction last week as traders started to once again focus on Brexit developments. GBP/USD forex analysis shows that the 1.2800 level is now acting as a key support and may prevent the pair from turning bearish over the medium-term. GBP/USD medium-term price trend GBP to USD technical analysis shows that the pair remains technically bullish, indicating that the GBP/USD pair is still attractive to buy on technical pullbacks. Furthermore, the recent pullback in the GBP/USD pair may help to complete an inverted head-and-shoulders pattern on the daily time frame.

Sustained losses under the 1.3000 level this week may see the GBP/USD pair testing towards the 1.2800 support region. The bollinger bands on the daily time frames are also confirming that the 1.2800 support level is extremely important The daily RSI indicator shows that despite the 600 point downside correction, the GBP/USD pair is not yet oversold. Risk-averse traders may be sidelined until the GBP/USD pair becomes more oversold and trades closer to its trend defining 200-day moving average. Traders that are more aggressive and looking to enter into the prevailing trend may look for price stabilisation around current levels, due to the fact that the GBP/USD pair has already had a substantial downside correction.

 

GBP/USD short-term price trend

GBP to USD technical analysis shows that the pair is only bullish over the short term while price trades above the 1.3000 level.

The last upside rally above the 1.3000 level found resistance from the 1.3075 level and was quickly sold off. This also created a fourth bearish lower high since the recent rapid decline from the 1.3000 level.

Until the recent bearish cycle of lower highs is broken, traders may use any technical corrections as a selling opportunity.

Sustained losses under the 1.3000 level should continue to trigger further technical selling, and may push the GBP/USD pair back towards the 1.2810 support level.

Key near-term resistance is located at the 1.2970 and 1.3030 level, while key support under the 1.2900 level is located at the 1.2860 and 1.2810 levels.

GBP/USD technical summary

GBP/USD forex analysis suggests that sustained losses under the 1.3000 level could trigger additional selling towards the 1.2800 level.

Traders should remember that a large inverted head and shoulders pattern is still in play on the daily time frame, and that the overall trend in the GBP/USD pair is still bullish.

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fxguy
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BoE: Bank of England could lower rates next week

 by Alejandro Zambrano


With seven days to the January 30 Bank of England rate meeting, the rate markets are anticipating the central bank to ease the interest rate from 0.75% to 0.50% with a likelihood of 61%.


 

Weak GDP growth and comments from the head of the bank, Mr. Mark Carney, and other Bank of England members is the reason why the probability of rates turning lower has risen in the last few weeks.

Just four weeks ago, the likelihood of a rate cut was at a low 5%. In this article, we will outline the reasons for the change in mood, and also what currencies pairs to watch, as the British Pound is poised to move lower on a rate cut.

Why could the Bank of England Cut Interest Rate in January?

On January 13, UK GDP data for November showed that the economy contracted by 0.3% in November, an outcome that was lower than the zero-growth anticipated by economists. The biggest drag was Manufacturing that contracted by 1.7%, while construction rose by 1.9%. But more importantly, the largest sector of the economy, the service sector, has seen dwindling growth, as seen in the chart below.

Service Sector Rolling three-month Growth

Source: ONS

Leading indicators are also not suggesting the economy will bounce back soon. The manufacturing and construction sectors should continue to contract.

The Markit Services PMI managed to climb above the 50 levels vs. an anticipated outcome of 49.2. However, it is not enough to suggest that the service sector is turning higher. The Construction PMI index dropped to 44.4 and lower than the 45.9 anticipated, a reading below 50 indicates that the industry is contracting. Manufacturing PMI is also struggling.

UK Inflation Dropping Sharply

Annual head inflation has also turned sharply lower. By December 2017 inflation was at 3.1%, while at the latest reading, it was at 1.4% and much lower than the Bank of England’s two percent target.

Core inflation is also trending sharply lower. In the December report inflation dropped sharply to 1.4% vs. the 1.7% projected, and much lower than the 2.7% level seen in September 2017.

Overall, soft economic activity and with no signs of bouncing, and fast slowing inflation rates looks to force the hand of the Bank of England, and Mark Carney.

UK Headline Inflation

Source: ONS

Not all in the economy is bad, and the unemployment rate is at a low of 3.8%, and wage growth is at a healthy rate of 3.2%. However, comments by BoE members: Silvana Tenreyro and Gertjan Vlieghe, are suggesting that the central bank is moving closer to cut rates.

In the December rate meeting, two members voted to cut rates, while 7 opted to keep rates unchanged.

GBPUSD Remains Bullish Above the December Low

The GBP to USD exchange rate trend remains upwards above the December low of 1.2904, and as long as the price trades above this level the price might be able to reach the December 31 high of 1.3280. If the Bank of England cuts rates the price might slide below the December low and reach the November low of 1.2766.

GBPUSD Daily Chart

EUR to GBP

The EURGBP exchange rate has declined over the last few days, and that means that the British Pound has strengthened. If the Bank of England, BoE, indeed reduces rates then that might send the EUR to GBP rate higher. But the price will need to take out the January 14 high of 0.8604 to have a long-lasting effect on the pair, until that happens the price might revisit its December 2016 low of 0.8301.

EURGBP Chart

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caballero
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Why Britain Joined EU and Why Britain leaving now?

Answer in the video ? ? ? 

 

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fxguy
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Brexit: “Independence Day” from the “German Project”, which is in distress with 500 million people on board

The country will slip away an hour before midnight from the club it joined in 1973, moving into the no man’s land of a transition period that preserves membership in all but name until the end of this year. At a stroke, the EU will be deprived of 15% of its economy, its biggest military spender and the world’s international financial capital of London. The divorce will shape the fate of the United Kingdom — and determine its wealth — for generations to come.

Beyond the symbolism of turning its back on 47 years of membership, little will actually change until the end of 2020, by which time Johnson has promised to strike a broad free trade agreement with the EU, the world’s biggest trading bloc. For proponents, Brexit is a dream “independence day” for a United Kingdom escaping what they cast as a doomed German-dominated project that is failing its 500 million population.

The June 2016 Brexit referendum showed a nation divided about more than Europe and triggered soul-searching about everything from secession and immigration to capitalism, empire and modern Britishness. Such was the severity of the meltdown over Brexit that allies and investors were left astonished by a country that was for decades touted as a confident pillar of Western economic and political stability.

Sterling could fall toward $1.20 if UK-EU trade talks disappoint, strategists predict

Sterling rallied in December after U.K. Prime Minister Boris Johnson’s Conservative Party won a significant majority in parliament, enabling the passage of the Withdrawal Agreement and effectively ending fears of a damaging “no-deal” departure.

The pound was trading at just below $1.31 on Thursday after the Bank of England opted to hold interest rates steady. The Bank of England cited its reason for holding rates as a perceived economic pickup derived from promising survey data in January, and some analysts have suggested that with a lengthy negotiating process ahead, the pound may reattach itself to traditional economic indicators, rather than Brexit.

The Bank of England on Thursday forecast anemic U.K. GDP (gross domestic product) growth of 0.8% in 2020, and Ferridge suggested that with uncertainty over trade keeping investment levels low, any concern over a breakdown in negotiations could send sterling back to the low 1.20s against the dollar. “We’re around $1.30 now, we’ve been down to the low 1.20s before when people were worried about the no-deal Brexit, but if the realization is that really there isn’t going to be that much of a free trade agreement – it’s going to be less access to the single market than Canada has at the moment – then there’s got to be every risk that sterling falls back to those low 1.20s we saw before, particularly if growth stays low.”

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fxguy
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GBP/USD Technical Analysis: Gains Stopped

by Christopher Lewis

The British pound rose more than 1% against the dollar last week after the Bank of England’s decision to leave the interest rate at 0.75% last Thursday, contrary to market expectations of the possibility of lowering interest rates. Technical studies point to the appreciation of the British pound, but these signals can easily be ignored due to the rapid spread of Corona virus inside China and in other countries, which is the most influential and most important event on the part of global financial markets. Due to economic concerns over its consequences for the performance of the second largest economy in the world, the People’s Bank of China (PBOC) announced that it will pump 1.2 trillion Yuan (130 billion pounds) of cash into the financial system through reverse repurchases in an attempt to alleviate any “liquidity” or shortage In cash.

And because of Corona, some Chinese cities turned into ghost cities during the past week, and with the virus now present in all provinces of China, there is an opportunity waiting for the whole country for a period of quarantine or self-isolation. This will have important and unprecedented consequences for the Chinese economy, which relies on manufacturing and export.

According to the technical analysis of the pair: On the GBP/USD daily chart, there is a clear break of the bearish channel, but we are awaiting a confirmation of the reversal strength, which may happen if the pair rises to the 1.3300 resistance. I still prefer to sell the pair from every upside level. It may return to the path of its descending channel if the pair falls to the support levels at 1.3090 and 1.0995, respectively. Trade relations negotiations between the two sides of Brexit in the coming months will be a good reason to press the gains of the pound against the other major currencies.

As for the economic calendar data: From the UK, the Industrial PMI will be announced, and from the United States, the ISM Manufacturing PMI will be announced.

GBP/USD

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Nicolas
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A Greater Britain After Brexit

A Greater Britain After Brexit

 

Britain left the European Union last week, but the event isn’t quieting defeatists insisting that Brexit will be an economic disaster. They’ve been rounding on Chancellor Sajid Javid for thinking big about the U.K.’s future. Mr. Javid dared to tell a newspaper in January that he thinks Britain’s economy can grow by 2.7% a year or faster.

Cue a parade of economists claiming this isn’t possible. Their claim boils down to this: Britain is afflicted by the same collapse in productivity hitting every other developed economy. This will put a brake on Britain’s economy, especially if immigration declines and Brexit imposes new trade friction with the EU. The Bank of England assumes growth of 1.5% is the best Britain can do.

President Trump’s tax reform and deregulation unlocked enough business investment and job creation to offset the headwinds of his trade wars. Policies matter. Britain has ample scope to replicate that success. Mr. Javid’s critics are right that the key will be accelerating productivity growth—an increase in the amount each worker can produce per hour. Britain for the past decade has achieved economic growth primarily by expanding its labor force, and more Britons are working now than ever in absolute numbers and as a share of the population. That labor expansion will wind down soon, especially if Prime Minister Boris Johnson limits immigration.

But the critics are wrong that a productivity explosion is out of reach. British productivity—about $58 of GDP per hour worked in 2018, according to the OECD—is lower than Continental Europe’s habitual laggard economies. France hits $68 and Germany $66. In the U.S. it’s nearly $71. The U.K. can catch up by stimulating investment to reach similar levels of capital stock (computers, machines and the like) per worker and increasing the skills of workers.

Bad policies explain why British productivity grew only 2.7% cumulatively between 2010 and 2018, according to the OECD, compared to 5% in the U.S. and nearly 9% in France and Germany. Culprits range from a lagging rollout of broadband by what used to be the nationalized telecom company to ultralow interest rates that divert investment to the likes of real estate.

Mr. Javid is well-placed to tackle a major productivity impediment, the U.K. tax code. The top rate on corporate profits has fallen to 19% from 30% in 2007. But Britain is more hostile to business investment than are most other developed economies, despite the rate cuts.

Britain can follow America in a better direction, combining high productivity with high employment rather than substituting one for the other. The costs in lost productivity of an EU trade deal that roped Britain into Brussels directives on green energy, consumption-tax rates and the like would be much higher than Britain’s losses from new trade friction.

All of this boils down to a choice: Will Britain go for growth after Brexit, or not? Britons voted for Brexit in part because they were tired of elites lecturing them about what was possible for Britain, often with reference to some EU rule. That era is ending.

A Greater Britain After Brexit, WSJ
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Nicolas
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XM
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Sterling under pressure as Brexit talks begin

LONDON, March 2 (Reuters) – Sterling came under renewed pressure on Monday, dropping to a 4-1/2 month low against the euro, as traders took a cautious view at the start of talks between Britain and the European Union on their future relationship after Brexit.

Around 100 UK officials head to Brussels for the first round of talks with the EU’s executive arm, the European Commission, which are due to last until Thursday. Half a trillion euros worth of annual trade and close security ties are at stake in what are bound to be tense talks.

The EU wants to give Britain beneficial access to its single market of 450 million people in exchange for guarantees that London would prevent dumping.

But Prime Minister Boris Johnson has said he wants to move away from the EU and refuses to be bound by its rules or the jurisdiction of its top court — all necessary, in the EU’s view, to ensure fair competition.

“It’s essentially the same (Brexit) story that’s been going on, but a new chapter,” said David Madden, market analyst at CMC Markets in London.

“All you need is one negative comment from a government official. The fact that that’s a possibility has dissuaded a large chunk of sterling buyers.”

By 1000 GMT, the pound was 0.5% lower at $1.2761. GBP=D3 Against the euro, it reached a four-and-half- month low of 86.83 pence. EURGBP=D3

The pound also reached four-and-a-half-month lows last week against both the dollar and the euro as fears of the spreading coronavirus prompted a selloff in global markets.

The Bank of England said it was working with Britain’s finance ministry and international partners to make sure “all necessary steps are taken” to protect the banking system and the broader economy.

Signs the global impact of the coronavirus is starting to weigh on a post-election recovery in Britain’s manufacturing came on Monday as factories reported bigger delays in their supply chains.

The IHS Markit/CIPS purchasing managers’ index (PMI) rose to 51.7 from the no-change level of 50.0 in January. That was its highest since April, but slightly weaker than February’s “flash” reading of 51.9.

Elsewhere, there were still signs of strength in the UK economy. British lenders approved the highest number of mortgages for house purchase in nearly four years in January, Bank of England figures showed on Monday, confirming a pick-up in consumer demand at the start of 2020.

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Nicolas
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Bank of England cuts rates

The central bank has also announced a new term-funding scheme to support small and medium-sized companies, as well as new steps to help commercial banks lend more. As of Wednesday morning, the U.K. had 382 confirmed cases of the coronavirus, including the country’s health minister Nadine Dorries.

Data released last month showed that the U.K. economy stagnated in the last part of 2019. The decision from the Bank of England comes just a few hours before the country’s finance chief is due to deliver new budget plans. Rishi Sunak is expected to announce new fiscal stimulus to tackle the impact of virus. However, Karen Ward, chief market strategist at JPMorgan Asset Management, questioned whether rate cuts alone will reduce the impact of the virus. “We believe targeted fiscal measures would prove more effective,” she said via email. Sterling fell on the back of the BOE’s decision, to $1.289 from $1.293.

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