GBP/USD Monthly Fundamental Forecast – January 2017

We are into the new year and we await the return of the traders and fund managers and the bankers who had been off on a long holiday in December leading to loss of volatility and liquidity in the pair during last month. We expect the markets to start returning to normality from the middle of this week and the traders and investors would then begin to establish some of their long term positions for the year. We believe that the general theme in the markets, atleast for the first half of the year, would be dollar strength and we expect that to affect the GBPUSD pair in due course of time.

The pound is also likely to be volatile by itself as we begin the year when we are going to see the Brexit process begin with the invocation of Article 50. The lead up to that is likely to be exciting for the traders as there is going to quite a bit of volatility with the risks and confusion still surrounding the process as no one seems to be very sure on how the process should be carried out. Add to this, the impending strength of the dollar as the market begins to price in the rate hikes expected during the course of the year and we now have a very dangerous combination that is likely to affect the GBPUSD pair severely this month and going forward as well. We expect the pair to break through 1.2000 and head towards 1.1800 during the course of the month as the dollar strength begins to take shape.

Looking ahead to this month, the market will watch closely the various economic reports and data from the US to see for continuing signs of strength in the US economy and it will also be watching out for the data from the UK to see how it is faring as we go ahead with the Brexit process. UK economy has continued to show some strength with no effects of the Brexit process so far but the market would like to see some more proof of the same in the data. The market will also be watching for statements from the UK and the Euro leaders to gauge how difficult the Brexit process is going to be and all of this is going to guarantee a lot of volatility in GBPUSD.