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After a short-term correction, the pound-dollar pair reversed towards annual lows, dropping to the boundaries of the 24th figure. The correction was due only to the temporary weakness of the US currency, while the pound does not have its own levers for recovery. The game against the British currency is still relevant, especially in the light of the upcoming events, where Boris Johnson will announce his first decisions as the country's prime minister.

Exchange Rates 16.07.2019 analysis

No one doubts that the former Foreign Minister Johnson will defeat the current Foreign Secretary Hunt. The latter has no chance: according to the latest poll from YouGov, Johnson is supported by 74% of the members of the Conservative Party, while Hunt is only 26%. Another interesting aspect of this opinion poll: the majority of "ordinary" conservatives do not believe in the ability of the acting foreign minister to withdraw a country from the European Union without a deal. But Johnson, according to the Tories, will fulfill this mission without any hesitation. The favorite of the political race, in turn, follows the expectations of the electorate - he does not tire of repeating that Britain will leave the Alliance on October 31, regardless of whether London will renew the agreement with Brussels or not. Given the unshakable stance of the Europeans, Johnson, along the way, calls for preparations for a "tough" Brexit. At the same time, he is confident that all the warnings about the catastrophic consequences of this step are too exaggerated. In other words, the Titanic rushes in full steam to meet its iceberg, and traders are forced only to count the days until the X hour.

It should be noted that the change of the political landscape in Europe did not affect the general situation regarding the prospects for Brexit. And for the first time in the history of the European Parliament, the European People's Party and the Social Democrats no longer have an absolute majority, which would enable them to create a solid coalition together. This fact entailed quite lengthy negotiations regarding personnel appointments to key positions. The outcome of this backstage fight is disappointing for the British: the new EU leadership still holds a principled position on the revision of the deal.

So, Ursula von der Leyen, who will soon lead the European Commission, said yesterday that the conditions for Britain's exit from the Alliance "the best possible" were agreed earlier by Brussels and London, while adding that it was not going to change anything in the deal. In this case, it almost repeated the position of the key EU leaders who are leaving their posts. In other words, Europe does not change its views on Brexit's prospects, while conservatives are preparing to leave the European Union without a deal. As for the prolongation of the negotiation process after October 31, it is also not so simple. Brussels generally agrees to a postponement - as Ursula von der Leyen noted, "for good reasons". But Johnson not only does not intend to justify the reasons for the delay, but also does not intend to make such a request at all.

Thus, the likelihood of a "tough" Brexit is growing every day, and the position of London and Brussels still have a multi-polar character. Of course, the "chaotic scenario" is not inevitable. After all, the deputies of the House of Commons should also speak up on this subject. Let me remind you that in the spring of this year, the British parliament rejected the option of leaving the European Union without a deal - 312 deputies voted for this decision, while 308 voted against it. After this vote, many deputies who supported the "tough" Brexit softened their position. By voting, most Tories would surely oppose withdrawal from the EU without an agreement.

Exchange Rates 16.07.2019 analysis

In such circumstances, Johnson will have to either be led by the House of Commons or enter into a confrontation with parliament. The second scenario of events is fraught with a vote of no confidence; therefore, the odious politician is unlikely to "give up the glove" to the parliamentarians. According to experts, Johnson will then choose one of two options: either ask Brussels to postpone the new parliamentary elections (which is unlikely, given the political rating of the Conservative Party), or agree to hold a referendum on the country's exit from the EU without a deal.

However, it is too early to talk about such prospects. Political battles in Britain will begin only in the fall, so for one and a half months, gbp / usd traders will be guided by current political events, which in turn are pessimistic. All this suggests that the British will continue to be under pressure in the near future, and any attempt to grow the pair should be used to open short positions.

In terms of technology, a pair of gbp / usd has the potential to decrease to the first support level of 1.2430 (the bottom line of the Bollinger Bands indicator on the daily chart). If the price drops below 1.2500, the Ichimoku trend indicator will form a "Parade of Lines" bearish signal, which will increase the probability of the pair falling to the support level indicated above.

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

Performed by Irina Manzenko,
Analytical expert
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