By IFCMarkets

Pound strengthened after Prime Minister’s speech

British prime-minister Theresa May said on Tuesday January 17, 2016 that her country is to leave no only the EU but also the single European market. At the same time, she said that free trade principles are to remain. Investors decided that Brexit will only limit trips of EU citizens to Britain and will toughen migration rules. As a result, pound sterling showed record daily growth since 1998. Will it continue strengthening?

Pound got additional positive from higher inflation in December as it reached 1.6% year on year instead of expected 1.4%. Some investors believe higher consumer price growth may limit chances on further rate cuts by the bank of England. Its next meeting will take place on February 2, 2017. The rate is currently being at the historic minimum of 0.25%. Current inflation is not above the 2% target level of the Bank of England. Brexit did not hinder the UK’s FTSE 100 from rising almost 25% since the referendum and hitting its historical high on January 16, 2017 – a day before Theresa May spoke. Next significant economic data will come out in UK on January 26, 2017 – the Q4 2016 GDP. British economy have risen about 2% last year, according to forecasts, so it could have outpaced US GDP growth of expected 1.5%.

On the daily chart GBPUSD: D1 is within the neutral trend. Further price increase is possible in case positive economic data come out in Great Britain and in case Brexit matter is settled.

• The Parabolic indicator gives bullish signal.
• The Bollinger bands have narrowed which means lower volatility. They are tilted upward.
• The RSI is above 50 having formed positive divergence.
• The MACD indicator gives bullish signals.

The bullish momentum may develop in case British pound surpasses 4 last fractal highs and the upper Bollinger band at 1.25. This level may serve the point of entry. The initial stop-loss may be placed below the Parabolic signal, the lower Bollinger band and the last fractal low at 1.2. Having opened the pending order we shall move the stop to the next fractal low following the Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level at 1.3 without reaching the order at 1.33, we recommend cancelling the position: the market sustains internal changes which were not taken into account.

Summary of technical analysis

Market Analysis provided by IFCMarkets