GBP/USD Fundamental Analysis – week of October 24, 2016

After a couple of weeks of high volatility, the GBPUSD pair had a comparatively quiet week in terms of volatility and also in terms of news. This pair had been the star since the beginning of the month with all focus on the Brexit process, the great big ‘fat finger’ fall and the trading of charges between the euro and the UK leaders on how the Brexit process should go. Each side stuck to their hard stance and tried to make it as difficult as possible for the other and this led to a war of words between the leaders which did nothing to help build investor confidence and this was seen in the volatility in the pair.

Last week, the leaders did a lot less talking and the market also got bored with their tantrums and chose to focus on the euro and the USD instead. This gave some respite to the pound and this was seen in the fact that it spent most of its time near the highs of its range at 1.2300s. Even the bad retail sales data, which was the only major economic news from the UK last week, did not do much in bringing the pair down, though it bucked the trend of late of improving data from the UK. The pair largely chose to ignore it and continued to sit near its range highs and it made a correction towards 1.2200 only towards the end of the week due to overall USD strength.

In the upcoming week, we have a speech by the Governor Carney and we also have the GDP from the UK and the US as well, all of which are likely to affect the pair. We believe that the true effects of the Brexit process and the fall in the pound will slowly percolate into the UK economy and will start showing up in the economic data sooner or later. We continue to be bearish on this pair and we believe that any rallies should be sold into. The GDP should be an important data point to understand the strength of the economy and if its falls below expectations, expect some more selling in this pair. Any approach towards 1.2300 should be a good region to initiate sells.