Brexit, Vaccine Talks and GBP/USD Price, Analysis and Chart:
- UK PMIs in expansion territory but the service sector slows down.
- Brexit optimism as both sides return to the negotiating table.
- GBP/USD presses against 1.3100
The latest UK PMIs showed a sharp slowdown in business activity in October, compared to the previous month, due to a ‘much weaker contribution from the service economy’. While all three readings show the economy expanding, ‘the slowdown would have been even more pronounced had it not been for exports rising as overseas customers sought to secure orders before potential supply disruptions as Brexit draws closer’, according to Chris Williamson, the chief business economist at IHS Markit. Williamson expects the UK economy to expand in Q4, but the rate of growth ‘looks to have slowed sharply and the risk of a renewed downturn has risen’.
There is a growing sense of optimism that the EU and UK can come to a post-Brexit trade deal in the next couple of weeks as both sides re-commit to fresh talks, starting today. These talks will continue over the weekend and into next week and beyond with both sides now implying that there could be compromises made to seal a deal. An article in the Daily Telegraph also said that senior figures in the EU’s negotiating team have been told not to leak details of the talks, as it is ‘vital the negotiations are given a last chance for success’.
In other Sterling-friendly news, the Oxford University vaccine trials are showing positive results and according to a University of Bristol report the vaccine ‘successfully produces a strong immune response’. The UK government has already purchased 60 million doses of the Oxford University/AstraZeneca drug which may be available for the vulnerable by the end of the year.
GBP/USD broke back above 1.3100 in early turnover but is now fading lower. The pair continue to be buttressed by Brexit hopes while ongoing US stimulus talks are adding volatility to the US dollar. As yet there is no new stimulus deal although reports suggest that there is a possibility that a deal may be struck, although not before the November 3 presidential election. With ongoing Brexit trade talks and US stimulus discussions, GBP/USD has a pair of heavyweight fundamental drivers in play, and as such caution is warranted.
GBP/USD Daily Price Chart (April – October 23, 2020)
IG client sentiment data show 36.44% of traders are net-long with the ratio of traders short to long at 1.74 to 1. The number of traders net-long is 17.32% higher than yesterday and 27.12% lower from last week, while the number of traders net-short is 16.02% lower than yesterday and 51.58% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise.Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading bias.
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