Article 50 letter handed over so why hasn’t the GBP fallen?

Pound sterling ‘likely to plunge to record low once Article 50 is triggered’

That was back in November. Since then we’ve seen a wide range of forecasts for the price of  GBP/USD post triggering ranging from 1.22 down to 1.2000 with some forecasting 1.1500 and some as low as 1.1200 and whilst we cannot rule out another move south, all the signs are that the bears have it all to do and from a technical standpoint the bulls look to be in complete control across the entire GBP range.

I always refer to the key trading indicator to see which way price is generally headed – the 200 day simple moving average. On all GBP crosses the 200 sma is nearby. On GBP/USD the price touched the 200 early last week and is poised to test this level again next week. On GBP/JPY the price crossed the 200 on the 30th November 2016 and has just about stayed above this level since though it is yet break clear of it. On GBP/CAD price last week through the 200, dipped back under and has last Friday closed above. GBP/CHF ended the day with the daily candle neatly split by the 200 with the close above, GBP/AUD has remained below the 200 since May 2016 and is now just 180 points away and GBP/NZD crossed the 200 some 11 days ago and remains above.

The inescapable conclusion we can draw from this is that the GBP is rallying and those forecasters predicting a Sterling sell off were wrong at least for the time being.

“We expect the triggering of Article 50 to initiate a ‘sell the rumour, buy the fact’ rebound in GBP from historic undervaluation as ambiguity over Brexit recedes,” says Marvin Barth, a foreign exchange analyst with Barclays bank in London.

It was always our assessment that the GBP has been a buy from the double bottom at 1.1992 particularly as we always felt the sell off in the GBP was excessive particularly in the light of a raft of  positive UK economic news.In the last four weeks we’ve seen Current Account read -12.1b from expected -16.3b, Retail Sales hitting 1.4% against expected 0.4%, C.P.I. reading 2.3% against 2.1% expected plus a raft of other positive UK releases and on top of this an unexpected move by M.P.C. member Ian McCafferty who voted for an immediate bank base rate rise at the last MPC Assett Purchase Facility vote.

So the picture from a fundamental and technical viewpoint is that the GBP remains a BUY from these levels especially with doubts being cast on President Trump’s fiscal plans and not much sign of a dollar recovery.

In the next trading week we have all the PMI numbers. Manufacturing on Monday, Construction PMI on Tuesday and Services on Wednesday and of course its NFP Friday so GBP’s immediate direction may take a lead from this data but our recommendation is to buy all GBP dips unless we see an across the board sell off at the start of the week.


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