GBP/USD Price Forecast – GBP/USD Made Hawkish Move on Brexit Optimism

Asian session has been busy for GBPUSD pair today as brexit optimism has helped British pound gain considerable headway against US Greenback with momentum that is supported fundamentally. The FT reported in Asia that UK’s Prime Minister Theresa May has sealed a Brexit deal on financial services. In response, the GBP/USD pair jumped over 100 pips to a session high of 1.28706, confirming a temporary low is in place at 1.2696 (Oct. 30 low). The recovery rally looks credible as it is backed by a sharp drop in the implied volatility premium for the cheap out of the money GBP puts, risk reversals show.  As of writing this article, the GBPUSD pair is trading at 1.2865 up by 0.78% on the day. While USD bulls did have fundamental support owing to hawkish US macro data, the demand for USD in broad market is subdued owing to modest retracement following US dollar index hitting new 16 month highs.

Investors Await BOE MPC Update & US Macro Data Update For Directional Cues

The deal finalized by Prime Minister Theresa may, is expected to give UK financial services companies continued access to European markets after Brexit. Market sentiment today is highly positive for risky trades across both equity and forex market owing to China stimulus plans and upbeat Asia-Pac economic data. This risk on investor sentiment is expected to provide major global currencies an upper hand which would mean US Greenback is likely to see further downwards pressure during today’s European and American market hours. There’s hints of optimism that a deal is coming but the details are still very murky and there isn’t anything convincing just yet. But considering how much negativity has been priced in and how traders are reacting (short squeeze), positioning suggests that the pound’s upside may last for a while longer as selling reached near stretched levels.

On release front, UK’s calendar is expected to see release of Manufacturing PMI & Nationwide HPI which has bearish forecasts. UK markets will also see release of Bank of England’s latest Interest Rate Decision and Monetary Policy Statement dropping at 1200 GMT.  A negative outcome in MPC Minutes and macro data could out a dent in GBP’s recovery price action but depending how much brexit optimism is priced in, there is likelihood for little to no impact from macro data update. On other side of Atlantic, US markets will see release of ISM Manufacturing PMI which also has slightly dovish forecast. From technical perspective, The Cable’s surge to the 1.2850 region puts the GBP/USD on pace to break the near-term bearish bias in current charts, but the day’s early bullish romp has failed to make a successful challenge of the 200-hour moving average, sitting at 1.2865 with further resistance at early October’s swing low of 1.2925, and a bearish turnaround can’t be ruled out as support remains thick but weak-willed from the three-month double bottom priced in from 1.2680.