Today we will see some important UK retail data being announced. However, that is not the big news that should influence the performance of the GBP. The date when the British people will be called to decide whether the UK stays in the European Union is fast approaching – and the pro-Brexit voices have just been rising. Now, with the dramatic tragedy that hit Brussels, the pro-Brexit sentiment is likely to be heightened.
On the other hand, the BOE does not dare to raise rates in the UK, precisely because it does not want to add further tensions to an already uncertain situation that may lead to a severe blow to the EU and to an initial shock to the UK, in case Brexit does happen.
Ridge Capital Markets believes that as the odds of a Brexit are rising, and considering all these aspects that we have mentioned, there is a scenario in which the GBP is very likely to keep falling. Plus, we also believe that the recent repeated comments by Fed board members in support of a Fed rate hike will keep sending the USD higher (it has already been jumping in the last days), claiming ground to the GBP.
We believe that shorting the GBP/USD or going long the USD/GBP currency pair can be two profitable moves for forex traders. After all, the USD is being backed by fairly good economic data and a hawkish central bank, whereas the GBP is being affected by all the Brexit anticipation scenario, and by a central bank that, in this context, does not have room to make strong moves.
In the opposite direction, we recommend traders to stay away from the EUR/GBP right now. The EUR has been gaining strength against the GBP due to the particularities affecting the UK currency, and due to the comments of Mario Draghi that no other rate cuts are being seen in the future. Still, the EUR is a currency that we believe is currently overvalued, being managed by a central bank that is known to do everything in its power to talk the currency down.
So, we believe that, while a bet on the USD against the GBP can make a profitable trade with fundamentals that can be understood and correctly predict the profitable direction of this recommended trade, we would not say the same about betting on the EUR against the GBP. The point here is to speculate and make an investment through the path of less resistance.