Date: 11 Sep 2018
Back in the 1980s, in the interbank market, traders sometimes referred to Cable (GBPUSD) as ‘widow-maker’ given the way it could move arbitrarily and sharply. To some extent, and particularly in an environment where positioning in Cable (whether long or short of the pair) is constantly vulnerable to headlines about Brexit, that title remains warranted. Monday afternoon’s spike higher in GBPUSD, which caught many market participants the wrong way round, was essentially occasioned by comments from the European Union’s chief Brexit negotiator, Michel Barnier, that “if we are realistic, we are able to reach an agreement on the first stage of the negotiation, which is the Brexit treaty, within six or eight weeks.” GBPUSD jumped despite the fact that Barnier has previously and routinely said that the aim is for a deal by November, to allow time for ratifications. Of course GBP bears had already had to ‘wear’ healthy UK GDP data earlier in the day, so were perhaps already on the back paw when the Barnier comments broke, but nevertheless, the Cable move was fairly sharp. Looking ahead, while Thursday’s Bank of England meeting isn’t ‘live’ in a rate-moving sense (given last month’s hike to 0.75 percent, policymakers may feel Monday’s UK GDP data helps justify their previous decision. As for Brexit headlines, those are the known unknowns that the currency market is having to (and will continue to have to) deal with on a regular basis. But the spike above 1.30 on Monday may well have left short-term positioning somewhat better balanced, while the 55-day moving average (currently at 1.3016) might now be seen by some as technical support on the downside. Ahead of the Barnier comments, France’s Societe Generale had already written that from a technical perspective Cable could re-test 1.3065-85 and that, if GBPUSD could break through that, then the next resistance might be 1.3165 and then the 1.3215-55 area. Whether traders feel Cable can re-test those heights remains to be seen.
by Neal Kimberley, External Currency Analyst