Despite the new of Commerzbank calls Theresa May's attempt to return to Brussels and talk with almost every EU high-ranking official Sisyphean amid traders losing faith in the Prime Minister's ability to provide an orderly Brexit, the GBP/USD pair rebounds unexpectedly from the monthly bottom. However, the reasons for this dynamic should be sought not in the strength of the pound but in the weakness of the US dollar. Markets enthusiastically received the news of the readiness of Washington and Beijing to sign a memorandum on the results of the next round of negotiations. The demand for safe-haven assets declined, forcing the US currency to retreat.
The dollar used a combination of drivers quite successfully such as aggressive monetary restriction of the Fed and trade wars in 2018. It lost important trumps this year, however, the response of central banks, as competitors to the Federal Reserve in the form of their readiness to soften monetary policy, brought the US currency back to life. Alas, if the trade conflict is exhausted and the new one does not begin, the gradual restoration of the world economy will return to the radar the issue of normalization in countries and regions such as the eurozone, Britain, and possibly Japan. However, it is too early to talk about it.
As for sterling, the fall in the yield on 10-year British bonds to its lowest level in the last 8 months, the rise in speculative bearish rates and two-month implied volatility, as well as the fall in risks of GBP / USD reversal to the lowest level since November show that investors are losing hope on the existence of an agreement between London and Brussels. CIBC notes that the pound is actively selling on growth, and only strong statistics on retail sales for December and progress in the negotiations between Washington and Beijing temporarily stopped the attacks of "bears".
As for sterling, the yield on 10-year British bonds fell to its lowest level in the last 8 months. The rise in speculative bearish rates and two-month implied volatility, as well as the fall in risks of GBP/USD reversal to the lowest level since November, show that investors are losing hope on the existence of an agreement between London and Brussels. CIBC notes that the pound is actively selling on growth and strong statistics on retail sales for December and progress in the negotiations between Washington and Beijing only temporarily stopped the attacks of "bears".
Dynamics of risks of reversal in the GBP/USD pair
By the end of the year, retail sales rose by 1% with a forecast of 0.2% m/m and the base indicator jumped by 1.2%. The main contribution was made by clothing sales, demonstrating the best dynamics over the past five holiday seasons. However, you should not rejoice strongly about this as we are talking about adjustments after a disastrous November. In general, the indicator expanded by 0.7% m/m and by 3.5% y/y in three months. In the week to February 22, the pound will have to pass a test of the labor market report in Misty Albion, the state of which is one of its strong features. When the average wage grows faster than inflation, the increase in real incomes of the population makes it possible to count on the growth of consumption and GDP.
I would not be surprised if the sterling will go with the flow in anticipation of a key vote in parliament scheduled for February 26. The submission went over to the side of the US dollar and the publication of the minutes of the January FOMC meeting will be the most important events of the week for the GBP/USD pair.
Technically, the rebound from the level of 50% of the wave CD within the framework of the changes in the Shark pattern at 5-0 was an excellent opportunity for the formation of long positions, which we have repeatedly said in previous materials.
GBP / USD daily graph