GBP/USD Fundamental Analysis – week of January 16, 2017

GBPUSD tried to make a breakout last week on the back of some serious dollar weakness but it ultimately fell back as we entered the second phase of the week. The main theme in the markets over the last week had been the weakness in the dollar and this opportunity was utilised by the bulls in several currencies to progress against the dollar but the pound could not capitalise on this. It did make an effort as it pushed through 1.2200 and traded above 1.2300 for a brief while but the bears then returned back with a vengeance and towards the end of the week and finished below 1.2200 once again.

The dollar weakness was caused by the Trump press conference which the markets had hoped would have a guidance regarding the future direction that his administration would take and what it would do to make America great again but in that aspect, it was a huge let down and the markets took out their disappointment in the dollar as there was a fear that Trump may not be as good for business as was initially expected. But on the other hand, the pound also continued to remain weak as fears surrounding the Brexit process continued unabated and there was a growing feeling that the UK is likely to have a hard Brexit rather than a soft one and that it may not get easy and free access to the Eurozone as it would like. This feeling has kept the pound under pressure though all the data released from the UK continued to show that the UK economy is strong despite Brexit.

Looking ahead to the coming week, there is a large amount of data being released from the UK including speeches from Carney and the PM May and we also have the CPI data and retail sales data due from the UK. The country and its economy continues to remain strong and it is likely that the pound is likely to gain some strength once all the details of the Brexit process are sorted out but for now, things are yet unclear and hence risky and hence the pound will remain under pressure in the short term and we could see a visit to 1.17.