The British currency continues to be down. Today, the pound, paired with the dollar has once again updated the annual minimum, dropping to the base of the 25th figure. The pair slid gradually but confidently enough to a minimum of last year to 1.2436 amid the gloomy prospects of Brexit. The probability of the victory of Boris Johnson is getting higher every day. Along with the confidence in his victory, the national currency falls simultaneously. All other fundamental factors, except Brexit, plays a minor role and this fact can be used in trading the GBP/USD pair.
Let me remind you that last week Boris Johnson received the greatest support in the election of the head of the Conservative Party. He received 71 votes more than his closest rival, the current Foreign Minister Jeremy Hunt. The victory was really devastating, hence after the first round, many market participants began to evaluate Johnson’s comments as the position of the future prime minister of the country and in fact, his position on Brexit boils down to three aspects.
First, he is against another transfer of the date of the country’s withdrawal from the Alliance to take place on October 31, with or without a deal. Secondly, Johnson refuses to pay out “payoffs” in the amount of 39 billion pounds to Brussels until Europe agrees on the terms of the deal acceptable to London. And third, he is considering the option of “hard” Brexit along with the other options. Moreover, their readiness for the chaotic Brexit, Johnson regards as an element of pressure on Brussels since he believes that the Europeans will prevent the realization of such a scenario and make concessions in the end.
In turn, the European Union answered Johnson ahead of schedule: no concessions, no revision of the agreement, and no additional privileges.. They also warned the ex-head of the British Foreign Ministry that failure to fulfill debt obligations would lead to economic sanctions on the part of the world market and the depreciation of the national currency and the fall in the UK credit rating. London will have to face such consequences if it really decides not to pay “compensation” after the country’s withdrawal from the EU. By the way, according to some experts, such a categorical Johnson may eventually scare many of his supporters.
It is noteworthy that his closest competitor, Jeremy Hunt, somewhat softened his position regarding Brexit’s prospects. In particular, he recently stated that when electing “the right approach to the problem,” the European Union will be ready to consider the possibility of new talks on Brexit. This was allegedly hinted to him by German Chancellor Angela Merkel. In general, Hunt takes a less rigid position regarding the prospects of the “divorce process” compared to Johnson and now, apparently, he decided to rely on centrist conservatives. here it is worth noting that not all Tories take a “hawkish” position on Brexit, especially if we are talking about the country’s withdrawal from the Alliance without any deal. In view of this fact, the intrigue of the final vote is still maintained and Johnson’s victory is likely but not a foregone conclusion.
However, all these events are not coming in days. According to various estimates, the decisive clash between the two remaining candidates will take place approximately at the end of July. In the meantime, Johnson will confidently go to the finals, exerting pressure on the British currency. This fact can be used especially if tomorrow the dollar weakens throughout the market, reacting to the results of the June Fed meeting. Many analysts warn that the recent surge of optimism about the US currency was at least premature and largely unjustified. Moreover, if the Fed really announces a rate cut in July or at least sets the stage for such a move, then greenback is swooping down the entire market, including the pound/dollar pair.
But in this case, the growth of the GBP/USD pair should be treated only as an opportunity to open short positions at a better price. Any negative news regarding the prospects Brexot will return the pair back home. Also, given the period of election campaigning among conservatives, there is no good news in this context. In particular, the very fact of the victory of Boris Johnson in the next ballot will put quite a lot of pressure on the pound. Thus, the GBP/USD pair can be sold when attempting corrective growth using the possible weakness of the dollar.
From a technical point of view, the situation is as follows. The pair on the daily chart is on the bottom line of the Bollinger Bands indicator, below the Kumo cloud and under all the lines of the Ichimoku indicator. All of these speak of the priority of the downward movement. The support level is the price minimum of last year at 1.2436.
The material has been provided by InstaForex Company – www.instaforex.com