- GBP/USD has been rising alongside the Conservatives' reelection chances.
- Opinion polls, trade headlines, and further Fed news are set to determine the next cable moves.
- Mid-November's daily chart is pointing to falling momentum for the pound.
Conservatives are consolidating their lead – that pound-positive development has overshadowed all other events, including poor UK figures. The run-up to the elections tops the agenda, but trade headlines and the US Fed minutes are also eyed.
This week in GBP/USD: Election optimism defies data
After several downbeat polls, Prime Minister Boris Johnson's Tories are back to double-digit gains. Nigel Farage's decision to drop his candidates from all the constituencies that Conservatives won in 2017 has damaged his Brexit Party on the national level. Moreover, the candidate lists have shown that the right-wing outfit has also abandoned 43 additional seats where Johnson's party came second in the previous poll.
Investors prefer the certainty of the PM's Brexit accord – a hard Brexit and still pending ratification – and his market-friendly policies over Labour. The opposition party's pledge to nationalize broadband has spooked investors, which were already wary of the hard-left leader and his promise to renegotiate Brexit.
The most recent surveys have shown gains for both main parties, but with the Conservatives running further ahead.
The "Boris boost" has overshadowed dismal data. The UK escaped a recession after growing in the third quarter – but the annual expansion of 1% missed expectations – and is also weak in absolute terms. Wage growth decelerated to 3.6% yearly in September, inflation slowed to 1.5% in October, and consumption squeezed last month. Overall, all four top-tier figures failed to impress.
In the US, the dollar whipsawed in response to trade headlines. President Donald Trump has touted progress in trade talks but also criticized China's practices. The Wall Street Journal reported that talks had hit a snag over the amount of Chinese purchases of US agrifoods. The dispute joins a disagreement over the removal of tariffs that markets want to see. The safe-haven greenback advanced when pessimistic news hit the wires and lost ground when positive ones came through.
Jerome Powell, Chairman of the Federal Reserve, said that the US is a "star economy" amid weakening global growth and maintained his stance that only a "material reassessment" would cause the Fed to consider cutting rates. Rate hikes are off the agenda, especially after inflation softened. Core Consumer Price Index (CPI) eased to 2.3% annually, worse than expected. However, previous figures, such as the Non-Farm Payrolls report and business surveys, painted a positive picture of the economy.
UK events: Every election poll matters
The December 12 elections remain left, right, and center for pound traders. Fresh surveys released over the weekend may determine how GBP/USD kicks off the week. Investors will be comparing every new poll with the one previously conducted by the same firm. All candidates remain on the campaign trail, and any gaffes they make – perhaps due to fatigue – may also move markets.
A substantial 10% gap for Conservatives should be enough to result in a comfortable working majority in parliament. Any result that falls short of that would be considered a loss for Johnson – who gambled on going to the country instead of trying to get his Brexit deal approved by parliament.
Mark Carney, Governor of the Bank of England, will appear before a parliamentary committee on Wednesday alongside several colleagues from the bank. He is set to repeat the same messages conveyed in the Monetary Policy Report (MPR). The BOE painted a gloomier picture of the UK economy, due to Brexit uncertainty and concerns about global growth. The bank also opened the door to cutting rates. In his appearance before MPs, Carney may be able to respond to the recent economic data.
Public Sector Net Borrowing (PSNB) is also of interest, mainly due to its political context. If the main political parties implement all of most of their generous spending plans, public coffers may be depleted. An updated report on government debt may provide a warning to both sides.
Here is the list of UK events from the FXStreet calendar:
US events: Trade and Fed minutes stand out
Trade talks between the world's largest economies are the central theme in investors' minds outside the UK. Any breakthrough that will enable Trump to sign a deal with his counterpart Xi Jinping may push markets higher and the dollar lower. A breakup of the talks could be detrimental to the global economy and boost the safe-haven dollar.
The US economic calendar kicks off with housing figures, which are set to show ongoing improvement.
The Fed's meeting minutes are set to shed some light on the bank's internal deliberations and disagreements. Two members voted against the rate cut in late October – and markets will want to see how reluctant the Washington-based institution has become to further rate reductions. While the document relates to discussions held before the recent jobs and inflation figures, it is critical to remember that the Fed is well-aware of the impact of its words and revises the minutes until the very last minute.
Markit's preliminary Purchasing Managers' Indexes for November are also of interest. They are expected to show mediocre expansion in both the manufacturing and services sectors.
GBP/USD Technical Analysis
GBP/USD has lost upside momentum on the daily chart – a bearish sign. It is also capped by downtrend resistance and experiences lower highs. On the other hand, sterling continues trading above the 50, 100, and 200-day Simple Moving Averages.
Overall, bears are gaining ground but are far from taking over.
Resistance awaits at 1.29, a round number, and also a high point in early November. It is followed by 1.2980, the peak in late October, and then by the cycle high of 1.3013. Next, we find 1.3130.
The pound enjoys robust support at 1.2760, November's trough, and a stubborn resistance line in June. It is followed by 1.2705, a swing high in October, which converges with the 200-day SMA. Next, 1.2850 was a peak in September, and it is followed by 1.2505, 1.2420, and 1.2390.
The significant differences between opinion polls make it hard to gauge where sentiment is going – and the sterling may suffer from substantial swings. However, it remains Johnson's election to lose. His victory is mostly priced in at this point, and any Corbyn-positive figure may plunge the pound.
The FX Poll is showing a bearish outlook for all time frames. It seems that markets are skeptical of a Tory victory despite the recent surge. Average targets have barely changed in the past week.
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