GBP still overvalued considering coming events

Swissquote Bank Research Team Swissquote Bank Ltd

European elections results published on Sunday are most likely to cause torments on the marketplace while market holidays in the US and the UK on Monday should have an impact on liquidity. The recent bounce in GBP/USD from 1.2657 low is above all a technical correction since the outlook for British pound remains gloomy. The results from EU elections, PM May’s resignation announcement and dragging trade discords between China and the US stay major concerns.

Theresa May plan to submit a fourth vote on its Withdrawal Agreement to UK MPs is fading as investors are anticipating her departure in 7 June 2019, opening the door to supporters of a harder Brexit deal. Boris Johnson who initiated the Brexit campaign in 2016, is perceived as favorite in the 6-weeks run that should start following US President Donald Trump visit in the UK in early June 2019. Furthermore, with the support of British voters to Nigel Farage newly formed Brexit Party, the turmoil has probably just begun. Considering upcoming events, we consider the recent up-move in GBP/USD as unjustified and continue to favor further downside risk. The recent releases of April retail sales of 0% (prior: 1.10%) and ex. auto fuel 4.90% (prior: 6.20%) is not particularly bright either.

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Currently trading at 1.2689 (-0.51 year-to-date), GBP/USD is heading along major support at 1.2607 (02/01/2019 low).

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Swissquote Bank Research Team

Swissquote Bank Ltd

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