Why We Are Making A Bullish Call On GBP/USD By Ashraf Laidi

Now that PM Theresa May has announced stepping down from the Conservative Party leadership as of June 7, the ongoing political chaos will shift temporarily from striking a deal on the Withdrawal Agreement to reaching a winner in the Party leadership race. We know former Foreign Minister Boris Johnson is considered as the favorite to become PM with 9:4 odds. We also know too well he’s a staunch Brexit supporter. I do not foresee him as the next Prime Minister. So what’s this chart telling us below?

Cable H And S May 24 2019

Cable H And S May 24 2019

If the inverted head-&-shoulders formation above is correct, then it suggests that we will no longer see a weekly close in GBP/USD below 1.2600. Perhaps an intra-week drop to 1.2580 or 1.2550 but not a Friday close under 1.2600. I continue to expect 1.3700 or 1.3800 before end of Q3. This includes a move of +400 pips in a single trading week within the next 3 weeks. After a series of winning trades in cable, we were unfortunate earlier this week to have been stopped out at 1.2630 in our cable longs. Keeping a clear head on the price, chart and fundamental considerations at hand is what counts to survive in this market.

For the record: We’re not basing our bullish GBP/USD call solely on the inverted H&S formation. There are other factors such as USD considerations, macro dynamics, spreads, positioning, and speculative sentiment.

Fundamentally, a rally in the cable could occur via several routes: Due to Boris Johnson’s staunch pro-Brexit stance and his relative indifference to a no-deal outcome, any emerging news negatively affecting his PM candidacy will be GBP-positive. An alternative Johnson scenario (GBP-positive) would be for him to secure a Brexit deal. Any path towards that would be a positive shock to the pound. There are various other options, not all of which are related to the leadership race. But the 3 major outcomes remain well on the table: Brexit with a deal, Brexit with no deal or a new general election and possibly the 4th outcome that of a second referendum. And keep an eye on Sunday’s EU elections results. A strong showing for the LibDems or a surprise +20% would be favorable for sterling bulls.

By Ashraf Laidi

May 26, 2019 12:41AM ET

Source: Investing.com

 

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