GBP/USD Fundamental Forecast – September 30, 2016

GBPUSD continued its ding-dong battle between 1.2950 and 1.3050 with no clear direction on either side. The price seemed to be controlled more by the flows in EURGBP and the Euro than any fundamentals associated with the pound. It was a tough market to trade as traders continued to expect a break on either side but it has not materialised so far.

Generally the pound and the Euro are two of the currencies that are most affected by the month end flows. The UK has to pay the Euro region more than a billion pounds as part of its membership requirements. This leads to a buying of the Euros and selling of the pound and this usually controls the price movements of the GBPUSD pair towards month end. Till a few months back, this settlement was done on a single day which affected the pound greatly but over the last few months, the settlement is done over two-three days during the end of the month this softens the blow on the pound.

GBPUSD Hourly

Add to it the uncertainty surrounding the actual situation in the Deutsche bank and this caused a risk-off sentiment in the stock markets and caused the S&P and other indexes to fall and this risk-off sentiment carried over into the FX markets as well and made the pound dive to its support region at 1.2950 as the US session wore on. It pays for traders to be aware of the latest in such developments as it could affect the markets greatly and lead to strengthening of the USD in general risk off circumstances.

The current account is the only major news that is scheduled to be released from the UK today. But with the end of the London fix for the month end happening today, we could see some volatility before the London fix and after it as well. A volatile day beckons. It would be interesting to see if the range of the last few days is finally broken today.