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FX.co ★ GBP/USD. UK-EU resolved fish issue, COVID-19, and sausage ban in Northern Ireland

GBP/USD. UK-EU resolved fish issue, COVID-19, and sausage ban in Northern Ireland

Yesterday, the GBP/USD pair fluctuated like most dollar pairs. The initial reaction of the market to the inflation data was in favor of the US dollar: the bears of this instrument managed to update the three-week low, namely the level of 1.4070. However, the dollar began to actively lose its position, despite yesterday's publication coming out to the "green zone". First, the American currency fell under a wave of sales in fulfillment of the trading principle "buy on rumors, sell on facts". It rose everywhere before the release, but as soon as the figures were published, the market showed a backlash. Second, traders seem to have doubted that rising inflation will strengthen the Fed's "hawkish" sentiment. In turn, the representatives of the regulator, cannot publicly comment on the released data, as they want to be silent before the June meeting. The results of which we will be known on June 16.

Such conditions allowed the GBP/USD buyers not only to extinguish the downward impulse but also to update the daily high (1.4177), approaching the level of 1.42. The strong US release provoked increased volatility for the pair, but it turned out to be useless for both bulls and bears. The pound is still trading in the 120-point price range for the fourth week in a row, alternately pushing off from its borders. If this instrument begins to gain momentum, the US dollar will strengthen its position and allow the GBP/USD pair to return to the lower limit of the range of 1.4100-1.4220. However, this did not happen. The bears failed to develop a massive decline due to the vulnerability of the US currency. As a result, the pair is forced to fluctuate within the current price range. Thus, it should be noted that even the record growth of US inflation did not help the sellers of the pair to escape from the wide-range flat.

GBP/USD. UK-EU resolved fish issue, COVID-19, and sausage ban in Northern Ireland

At the moment, the pound is strengthening its positions again, heading towards the upper border of the above range. The reason for optimism was the fact that the UK has finally concluded a deal with the European Union on the issue of fishing. The parties agreed on a catch limit for the British fleet worth 340 million pounds. The "fish issue" remained an unsolvable problem for many months, so the compromise reached supported the pound.

However, the pound is unlikely to be able to stay at the upper border of the price range and even more so above the level of 1.4220. There are several fundamental factors that act as hindrances for the pound including paired with the dollar.

First, the EU has threatened the UK once again with legal proceedings. This time at the level of the leadership of the European Commission. The reason was the earlier unilateral decision of London to postpone the implementation of the agreements on Northern Ireland. Brussels accuses Britain of making unauthorized amendments to the agreement, which was concluded the year before last. London has unilaterally extended the transition period for British suppliers of certain products and goods to Northern Ireland until autumn. In response, the European Commission launched legal proceedings against Britain.

In other words, a political dispute may end in a trial in a Luxembourg court. This week, the Vice-President of the European Commission, Maros Sefcovic, confirmed the possibility that Brussels could file a lawsuit. According to the court's decision, the UK can receive significant fines, and a trade war between the two can begin again, in which the EU will impose sanctions on British exports.

Based on the agreement with the EU, the grace period was supposed to end on April 1, but the British side unilaterally extended this period until October 1 amid pressure from entrepreneurs. British journalists have dubbed this process "sausage war", as the Irish stores and warehouses began to feel a shortage of frozen meat. It should be noted here that the Vice-President of the European Commission threatened London with a court of law a few days before the summit of the leaders of the G7 group to be held this weekend.

Another factor is the coronavirus. According to the latest data, the situation with the cases in the UK has begun to fail again. The daily growth in new COVID-19 cases from mid-April to May 26 did not exceed the 3-thousand mark but over the past two weeks, a consistent upward trend has been recorded. In particular, 7,232 cases of infection were recorded yesterday. The situation is further worsened by the fact that more than 90% of new COVID-19 cases in the country are infected with the "Indian" strain of coronavirus, which is 40% more contagious than the "classic" coronavirus. Against the background of such trends, experts are concerned that the further spread of this strain may affect the pace of lifting quarantine restrictions in the UK, and, accordingly, the pace of recovery of the British economy.

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GBP/USD. UK-EU resolved fish issue, COVID-19, and sausage ban in Northern Ireland

From the point of view of technical analysis, it is advisable to consider short positions for the GBP/USD pair with the first target at 1.4150 (middle line of the Bollinger Bands indicator, which coincides with the Tenkan-sen line on the daily chart) when it approaches the upper border of the range of 1.4100-1.4220.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade
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