Pound jumps on soft Brexit hopes

Uncertainty is usually bad. But with regards to the resignation of David Davis, market participants think it may actually be a good thing as far as the pound is concerned.

Uncertainty is usually bad. But with regards to the resignation of David Davis, market participants think it may actually be a good thing as far as the pound is concerned. The Brexit secretary resigned after the UK Prime Minister Theresa May forced through a new “soft Brexit” strategy she intends to present to the cabinet at Chequers. Markets welcomed the news because it means one less supporter of hard Brexit, even if it further raises uncertainty over May’s position and the Conservative Party in general. What the markets are now betting on is the increased likelihood that the UK might remain in the customs union with the EU after all. It may also mean that the stalemate in talks with the EU may end quicker now thanks to a compromised Brexit deal. In short, the economic impact of Britain’s departure from the European Union may be less severe than would otherwise have been the case. However, some would actually argue that nothing has been agreed on yet and given the increased uncertainty over the Conservative government, it might be too early for pound bulls to start celebrating. What’s more, the replacement for David Davis is another Brexiteer: Dominic Raab.

New UK monthly GDP data eyed

Meanwhile, the ONS will start publishing monthly UK GDP estimates going forward. A quarterly GDP figure will still be released, like before. However that will merely be a summation of the monthly data and will thus have a far less impact on the pound than it did before. The data for the month of May will be published tomorrow morning. If we see a strong number then this could help the pound maintain its short-term bullish bias. As well as GDP, we will also have the latest manufacturing, construction and trade figures released at the same time. So, watch out for a bout volatility at 09:30 BST (04:30 EDT) tomorrow.

GBP/USD breaks short-term resistance

So far, the GBP/USD has held its gains after gapping above Friday’s close and resistance in the 1.3275-1.3310 range. This area is now the key short-term support to watch for if we go back below it again then it would suggest the buyers have got trapped and they will probably get in real trouble should the next support at 1.3205 also breaks. But for as long as support in that 1.3275-1.3310 range holds firm then the path of least resistance would remain to the upside in the short-term outlook. The outlook would become even more bullish if rates go on to climb above 1.3470 – the most recent swing high. Should this happen, then we will have our first distinct higher high.

Source: TradingView.com and FOREX.com.

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