GBP/USD Daily Fundamental Forecast – October 27, 2016

GBPUSD has continued to remain strong over the past 24 hours which is a bit of a surprise considering the fact that the USD has strengthened overnight. We did see a huge dip in the pair a couple of days back for no apparent reason but since then, it has made a strong comeback and it looks bid despite all other currencies weakening against the USD, including the Euro. Weakness in EURGBP, which might be partly due to the month end flows, could also be a good reason for the pound to remain bid. The pair has broken through 1.2200 and sits at the range top at 1.2230 which we had mentioned as a strong resistance region.

The bid tone in the pair has also been greatly helped by the fact that the UK leaders and the Euro leaders have gone quiet as of this week unlike the earlier weeks when they had been issuing threats to each other to make the Brexit process as difficult for the other party as possible. It could also be due to the fact that there is some realisation in certain quarters that a low pound would be useful in shoring up and boosting certain parts of the economy which had not been having a good time of late due to the strong pound. Carney had also pointed out in his speech that the BOE would not be oblivious to the falling pound and would be viewing a continued fall in the pound seriously. This was considered as hawkish by certain quarters of the market and this could also be the reason why the pound continues to be well bid.

Looking ahead to today, we have key data coming in from the UK in the form of the Preliminary GDP which is expected to come in at 0.3% against the previous value of 0.7%. This will be a key data in knowing how far the economy has been affected by the Brexit process so far and the falling pound. If the data exceeds expectations, then we could see a bullish run in the pound towards 1.2300 while bad data would mean than the pair could fall down below 1.2200 towards 1.2100 and could challenge the lows of the week.

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