Brexit uncertainty will continue to weigh on the pound in the coming weeks
The pound is staying more firm to begin the new week as cable sits higher at 1.2060 while EUR/GBP is slumping by 0.5% to lows of 0.9260 currently.
There isn’t much new Brexit developments since the weekend except for a proposed meeting between UK PM Johnson and Irish PM Varadkar some time in the near future.
That said, I don’t see any major breakthrough being achieved and as such, I reckon whatever reprieve the pound may find during the summer break will not be long lasting.
Market positioning as of last Tuesday shows that shorts are at their most stretched since April 2017 and that’s a potential cause of concern for traders to stay short unless they are increasingly confident that a no-deal Brexit will take place by 31 October.
It’s something that can’t be ruled out but I reckon it’s also something that traders will find hard to ever truly price in until it is confirmed.
As such, perhaps a near-term bottom around 1.2000 may be where the pound makes its stand for the time being. Considering the summer break, there isn’t much to push the no-deal Brexit agenda as well as give market participants a heightened sense of political uncertainty among rumblings in the UK parliament.
The figure level and the 2017 low of 1.1986 will be key levels to watch out for over the next few weeks as we navigate through a lack of Brexit progress in the mean time.
As for any topside retracement, be wary of a move back above the broken trendline support @ 1.2087. That will be the spot that buyers will be trying to hold in order to gather back some upside momentum in a possible reprieve.
Looking ahead this week, we’ll have key UK data releases to follow with the latest labour market report due tomorrow, then the inflation report due on Wednesday and then retail sales data due on Thursday.
The above releases may help to spruce up the pound if they are better-than-expected but in light of Brexit uncertainty in the big picture, I reckon it’s still a sell-on-rallies play for the pound going into September.