GBP/USD. US economy disappointed, but the pound is busy with its problems

Trading 29 avr 2020 Donner votre avis

Data on the growth of the US economy came out in the red zone, not reaching forecast values. US GDP fell by 4.8% (the strongest decline since 2009) in the first quarter, while preliminary forecasts were somewhat more optimistic - according to preliminary estimates, the indicator was supposed to fall by "only" four percent.

All this suggests that the key indicator will also demonstrate a more significant decline in the second quarter - by 20-30% (according to some representatives of the Fed, the economy will slow down to 35%). The key component of GDP - consumer spending - collapsed by 7.6%, while this indicator was projected to decline by 3.5%. Exports fell by almost 9% and imports by 15%. But it is worth noting that some components of today's release were still better than predicted. In particular, the underlying RFE rose 1.8% in spite of growth forecasts to 1.7%. The price index of GDP was pleasantly surprised - it remained at the February level (1.3%), while analysts expected it to decline to one percent. However, a "spoon of honey in a barrel of tar" did not help the US currency - the dollar index again returned to the hundredth mark, reflecting a decrease in demand throughout the market.

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The greenback fell in almost all dollar pairs, although traders were in no hurry to open large positions ahead of the announcement of the results of the April meeting of the Federal Reserve. The dollar was under pressure - depressing numbers did not allow bulls to prove themselves. But not all currencies were able to take advantage of the US vulnerability - for example, the pound has become cheaper today even against the background of a weakened greenback.

As you know, the British currency has been trading in its own coordinate system for a long time (to be more precise - since 2016), setting priorities for itself among many fundamental factors. The No. 1 topic for the pound has always been Brexit and any more or less significant news related to the "divorce proceedings". At the moment, Brussels and London have legally terminated their "relationship", but the question of a trade agreement has remained in the air. The first negotiations began in February, but the coronavirus prevented the parties from engaging in a full-fledged dialogue, after which the discussion on the deal was frozen. Now that COVID-19 is retreating, the members of the negotiating group have returned to the negotiating table (so far in video conferencing mode) and again reminded the traders about Brexit's problems.

It is worth recalling that the February talks in the framework of the transition period began with harsh statements, both from the Europeans and the British. British Prime Minister Boris Johnson repeatedly threatened to leave the negotiation process, while Brussels promised Spain support in the matter of territorial claims regarding Gibraltar. The French also joined in a kind of "courtesy exchange": in particular, French Foreign Minister Jean-Yves Le Drian said that both sides are far apart on a number of issues. However, he warned the UK that it should expect a "bloody battle" in the upcoming talks. The French Foreign Minister also reiterated the position of the European Commission that it would be difficult for Britain to achieve the goal of concluding a free trade agreement before the end of the year.

To date, the situation in the negotiations has not improved. Despite the forced pause, London refuses to extend the transition period to agree on a trade deal, although most European politicians (and even many British) even before the coronavirus epidemic stated that the parties would not have time to agree on all points of a future agreement before the end of this year. For example, an agreement on trade and economic cooperation between the EU and Canada was concluded in 2016 after seven years of negotiations, but similar negotiations between Brussels and Australia on a free trade agreement started back the year before last and still have not ended.

Nevertheless, the Cabinet of Ministers of Boris Johnson continues his game: today, Foreign Minister Dominic Raab said that Britain would refuse to extend the Brexit transition period, even if the EU asks for a postponement. With this phrase, he answered the corresponding request of the leader of the Scottish nationalist faction, who called on the government to extend the transition period. According to him, the coronavirus pandemic and quarantine do not allow the parties to discuss in detail the agreement on the format of the future partnership.

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London's peremptory position put pressure on the GBP/USD pair: despite the general weakening of the dollar, the price stepped back from the boundaries of the 25th figure and drifted in the area of yesterday's lows in anticipation of the announcement of the results of the Fed meeting.

Thus, the theme of coronavirus is gradually fading into the background, giving way to Brexit. With a high degree of probability, it can be assumed that at the re-launching stage, the parties to the negotiations will again converge in the clinch, putting forward mutual demands and ultimatums. Amid the recession of the British economy, such a news flow will put significant pressure on the pound. Therefore, short positions in the pair should be considered in the medium term, especially since upward momentums are dampened. The GBP/USD resistance level is at 1.2590 (the upper line of the BB indicator on the daily chart) - that is, with a weakening growth rate in the border area of the 26th figure, you can sell while aiming for a decline target at 1.2310 (the upper border of the cloud Kumo on the same timeframe).

The material has been provided by InstaForex Company - www.instaforex.com

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