Today’s NY close will mark both the end of September and the end of the third quarter of 2016. Often times, these month-end, quarter-end trading sessions can see broad reversion moves within long worn price ranges. With the UK current account data scheduled for release today, could month-end flows lift the Sterling into the weekend?
Doing a straight quarter-to-quarter price analysis, the GBP/USD looks overdue for a substantial recovery. The pair started Q2 of 2016 at 1.4250 and started Q3 more than 10 big figures lower at 1.3225. Over the last couple of months, the GBP/USD has been trading in an inverse pennant formation bound by the 1.2850 level on the downside and finding resistance just under 1.3500.
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During the same period, the FTSE 100 has gained just over 4%, which illustrates a combination of over expectations of widespread asset devaluation post-Brexit and the re-pricing of growth assets relative to the lower Sterling.
The UK balance of payment report is first-tier data set and has been heavily influenced by the sharp devaluation of the Sterling since the June 24th referendum. Market forecasts are calling for a contraction of the trade deficit from – £32.00 billion to -£30.00 billion. And while seeing the deficit shrink by 2 billion quid may not appear to be a large improvement, it’s still materially better than blowout numbers predicted by Brexit opponents.
Chart – FTSE
EUR/USD
