The 2 main pieces of economic data clearly support another leg high on the GBP/USD pair. In fact higher than forecasted inflation and retail sales data are the perfect mix for expecting another step in the monetary policy normalization plan long ago announced by the BoE and their MPC peers. As elementary economic theory tells us, a tighter monetary policy results in the appreciation of the underlying currency; and by tighter we refer to both the end of any cash stimulus to the economy (QE) and the increase of the lending rates.
However, with such a clear indication in favor of a reinvigorated hawkish approach by the Central Bank, any neutral observer could expect a several hundreds and continuous rally on the Pound. Yet, we witnessed a massive retracing swing on the Pound yesterday, and I shy 60 pips bullish reaction today (So far). It is true that retail sales figures, although better than expected, came out lower than the previous period, which is not precisely an indication of economic robustness, but overall the picture of the BoE closely following the pace of the FED should certainly imply a more decisive upward momentum.
So, what is holding the British Pound from reconquering the multi-year average of 1.4500 to 1.5000 with regard to the USD? The answer is simply and well known by every trader: BREXIT. Brexit represents a huge challenge for retail investors due to the lack of any centralized, definitive, and accurate source of information. For example, news on the EU reluctance shown towards Prime Minister´s proposal regarding the Irish boarder in the informal summit in Salzburg just hit the wires with no apparent reaction on price. We have frequently experienced the apparently contrarian and irrational reaction of several bit of information published around the ongoings of Brexit negotiations, and although the general sentiment of the broader majority of market participants relies on the prospect of a deal soon, nobody is yet willing to make a final bet on how appealing it will be.
Consequently, we expect more erratic price action in both directions in the coming weeks. Thus we suggest cautious at maximum levels, and that a long-term trading method with broad stop losses and very little leverage. Moreover, an intra-day swing positioning and lots of patience seem to be the least risky way of trading any GBP pair.
We see the 100 and 200 EMA on the daily basis halting any further bullish momentum.