A detailed GBP analysis:
Negative factors:
➡️Last week's PMIs were disastrous. GDP often follows the PMIs, which paints a very bleak picture for the future of the UK economy.
➡️Inflation is at a dizzying 9%.
➡️The consumer is suffering the consequences of inflation and sentiment is thus in the basement.
➡️Sometimes retail sales also follow consumer sentiment (strong correlation).
➡️If retail sales actually collapse to such an extent, this would further weaken the UK's growth and a recession would be a real risk
(Next retail sales release on 17.06.22)
➡️With the threat of a recession, the central bank of England (BoE) would row back sharply on the interest rate hikes already priced in as not to put further strain on the population and the economy
-> this would result in GBP weakness. (Next BOE meeting on 16.06.22)
➡️Brexit disputes with the EU could boil up again and put additional pressure on the GBP.
However, much of this is already more or less priced into the GBP and the reason why the GBP is one of the weakest G10 currencies since the beginning of the year.
Now to the positive sides:
As mentioned, the labour market in the UK is booming and the unemployment rate is at an all-time low.
-> As long as the labour market can remain stable, there is hope for the UK economy.
-> but at the same time this means that if we get much weaker labour data in the future this would weigh massively on the GBP (next labour data will be published on 14.06.22, even before the BOE meeting)
➡️On Thursday the UK Chancellor of the Exchequer announced a new £15 billion fiscal package where those on the lowest incomes are to receive a one-off payment of up to £600 from the government. This is a big boost and can add up to 0.7% to the UK's GDP
-> this is very positive for the GBP
As mentioned, much of the negative is already priced into the GBP, so many speculators (hedge funds, trend-following algos) are already heavily short GBP.
When so many speculators are already short, the danger of short squeezes is high.
-> Short squeezes can be particularly violent and result in a rapid rise in the GBP price.
Conclusion:
In the long term, the negative factors weighing on the GBP outweigh the positive factors for me, but in the short term much of this is already priced in and it would take a short squeeze to force the speculators out of the market. Only then would the GBP be an attractive short candidate for me for a long-term swing trade.
-> The factor that would make the GBP a long-term short candidate earlier would be a sharp weakening of the labour market.
ℹ️This analysis was from the point of view of a long-term swing trade.
Of course, shorter-term day trades in GBP (in either direction) are equally possible at any time.
Tip: Look out for the GBPUSD at 14:00 GMT time today. It will highly likely trade at 1.25500 and after that a bigger move could follow.
Negative factors:
➡️Last week's PMIs were disastrous. GDP often follows the PMIs, which paints a very bleak picture for the future of the UK economy.
➡️Inflation is at a dizzying 9%.
➡️The consumer is suffering the consequences of inflation and sentiment is thus in the basement.
➡️Sometimes retail sales also follow consumer sentiment (strong correlation).
➡️If retail sales actually collapse to such an extent, this would further weaken the UK's growth and a recession would be a real risk
(Next retail sales release on 17.06.22)
➡️With the threat of a recession, the central bank of England (BoE) would row back sharply on the interest rate hikes already priced in as not to put further strain on the population and the economy
-> this would result in GBP weakness. (Next BOE meeting on 16.06.22)
➡️Brexit disputes with the EU could boil up again and put additional pressure on the GBP.
However, much of this is already more or less priced into the GBP and the reason why the GBP is one of the weakest G10 currencies since the beginning of the year.
Now to the positive sides:
As mentioned, the labour market in the UK is booming and the unemployment rate is at an all-time low.
-> As long as the labour market can remain stable, there is hope for the UK economy.
-> but at the same time this means that if we get much weaker labour data in the future this would weigh massively on the GBP (next labour data will be published on 14.06.22, even before the BOE meeting)
➡️On Thursday the UK Chancellor of the Exchequer announced a new £15 billion fiscal package where those on the lowest incomes are to receive a one-off payment of up to £600 from the government. This is a big boost and can add up to 0.7% to the UK's GDP
-> this is very positive for the GBP
As mentioned, much of the negative is already priced into the GBP, so many speculators (hedge funds, trend-following algos) are already heavily short GBP.
When so many speculators are already short, the danger of short squeezes is high.
-> Short squeezes can be particularly violent and result in a rapid rise in the GBP price.
Conclusion:
In the long term, the negative factors weighing on the GBP outweigh the positive factors for me, but in the short term much of this is already priced in and it would take a short squeeze to force the speculators out of the market. Only then would the GBP be an attractive short candidate for me for a long-term swing trade.
-> The factor that would make the GBP a long-term short candidate earlier would be a sharp weakening of the labour market.
ℹ️This analysis was from the point of view of a long-term swing trade.
Of course, shorter-term day trades in GBP (in either direction) are equally possible at any time.
Tip: Look out for the GBPUSD at 14:00 GMT time today. It will highly likely trade at 1.25500 and after that a bigger move could follow.