GBP under pressure

16 January, 2017

A speech from Theresa May is one of  the key events for financial markets this week and certainly the most relevant for the British pound. Primie Minister is about to deliver a speech on UK’s stance and conditions ahead of the triggering article 50 and beginning the Brexit negotiations. 

The news of the speech alone had a negative impact on the GBP, as the currency seems unable to take advantage of solid macroeconomic data amid "hard Brexit" concerns. Namely, investors are worried that the UK government will put economic reasoning on the back seat as it tries to please eurosceptics that backed  the EU-exit. 

According to the Guardian, people close to May say she is going to signal that:

UK must be prepared to leave EU customs union
regain full control of its borders, even if that means losing access to the single market 
cease to be subject to rulings by the European court of justice

Well, if that’s indeed the case, ramifications for the UK economy - and impact on the pound - will not be positive, and this is exactly what the markets are discounting. The newspaper claims that May will stress that "The losers have the responsibility to respect the legitimacy of the (Brexit vote) result".

GBPUSD sinks below the key support zone ahead of the May’s speech. Source: xStation5  

The GBPUSD opened a week with a Bearish gap even though the US dollar has been under pressure on its own. At the same time it’s a break below a support from late 2016 and while an exact low from a 2016 flash crash is disputed, it’s 1.20 that it’s treated as an ultimate support. Even though GBP buyers are trying to regroup now, bears made the first step to bring us to sub-1.20 reality. 

The speech has been scheduled for Tuesday, timing remains unspecified. 

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