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May 17 - 09:55 PM

GBP/USD - COMMENT-Sterling's Bounce Provides An Opportunity

By Andrew M Spencer  —  May 17 - 08:30 PM

Strong UK jobs data nL5N2X91BH and a weak U.S. dollar saw GBP/USD jump 1.5% on Tuesday, providing an opportunity for bears, as the pound faces many lingering problems.

The Bank of England is stuck between a rock and a hard place on the pace of rate hikes, with inflation expected to hit 10%, while the economy stalls as consumers' spending power recedes nL5N2X853M.
The BoE and the market will be data-driven in turbulent circumstances.

The Brexit endgame approaches, as the UK has set out a new law to circumvent the Northern Ireland protocol that was agreed in the Brexit deal with the European Union nL5N2X91DJ.
Should the UK proceed to implement the legislation, trade barriers could follow, and as the EU is the UK's largest trading partner, sterling would suffer nL5N2X932J.

The health of Britain's finance sector is key to post-Brexit prosperity.
A significant group of economists sounded the alarm on Monday on the dangers of the government's 'competitiveness' focus nL5N2X70NU.

Sterling's 2.75% bounce off Friday's 1.2156 2022 trend low leaves mixed signals on the daily chart, while weekly signals trend south.
The 21-day moving average, which comes in at 1.2514, has capped the move lower since mid-March. Shorts with a stop on a close above the 21 DMA, looking for a return to the 2022 low, provide strong risk-reward.

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Source:
Refinitiv IFR Research/Market Commentary

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