GBP/USD Daily Fundamental Forecast – November 29, 2016

The pound received a pounding yesterday as a combination of mild USD strength and month end flows pushed the GBPUSD pair from the highs of over 1.2500 to under 1.2400. Towards the end of every month,we see a lot of selling of GBP as the UK has to pay the EU membership fees (worth billions). So, we see the prices of EURGBP going up and this affects the prices of the pound and it crashes through below due to this month end flow. Of course, this doesnt always happen this way as generally the payments are split over several days and well hidden and so it is difficult to judge or anticipate such moves and we generally become aware of this only after the payments have gone through.

We also have reports that there are going to be further legal challenges to the Brexit process and this is likely to further delay the whole process and it is highly likely that the timelines for the Brexit process are going to go awry. On one hand, we have the UK government challenging the HC decision to call for a Parliament debate. On the other, we have the Parliament debate getting ready in case the higher court refuses to overturn the decision of the HC and now we have this legal challenge to overcome as well. It does look like a long road ahead and the longer this process is delayed, the more likely will there be more challenges and confusion and this could seriously affect the strength of the pound and hence the UK economy as a whole.

Looking ahead to today, we do not have any major news from the UK for today while we have the advance GDP that will be released from the US and we can expect some more volatility today as well as we approach the month end and the month end flows are likely to continue today and tomorrow as well. Expect some consolidation with a bearish bias.