GBP/USD Fundamental Analysis – week of December 12, 2016

GBPUSD had a down week as it was constantly under pressure due to its big sister, the euro. The euro was thrashed last week due to the extension of the QE program by the ECB and this pulled down EURGBP which in turn put pressure on the pound. As we have been saying for quite sometime now, the pound has been showing some great strength over the past couple of weeks despite all the confusion and risks surrounding the Brexit process. The pound continued to rise during the early part of the week, as it has been doing for the 2 weeks before that, and even breached 1.27 and was seen heading towards 1.28 before it was pulled down by the news in the euro which cast a shadow on all the eurozone currencies.

The pound also came under pressure due to the continuing delays surrounding the Brexit process as the debate rages on in the Parliament and elsewhere on how the invocation of Article 50 should be handled. There was also a talk that the final agreement with the Eurozone needs to be ratified by the Parliament but this was just a continuation of the various rumors that are floating around and even now, the exact process and timelines remain murky. This is likely to keep the pound under pressure and any sort of bounce should be viewed as an opportunity to sell the GBPUSD pair.

In the coming week, we have a range of economic news from the UK including the CPI data and the Claimant count change data. We also have the rate announcement and statement from the BOE, which is expected to keep the rates stable at 0.25%. Apart from this, we also have the Fed rate announcement and statement where the Fed is expected to hike rates and also give guidance on further hikes in 2017. It remains to be seen on how the market reacts to all this news and we would advice the traders to stick to strong support and resistance regions and trade with tight stop losses as the markets are likely to be highly volatile in the coming week.