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Bingo ! GBP 1.4025

February 24, 2016

In my yearly “Outlook 2016” note dated Dec 31 2015 I clearly stated that BOE will not hike rate and fate of Pound Sterling will hang around European Union referendum, which will keep GBP under pressure.

The choice for UK Business Community is obvious, as they would be more interested to stay in EU. They think it would benefit from Free Trade, as membership would help reduce Trade Barriers, allowing free movement of its Capital and Labor and leaving could lead its economy under threat.

But there is a cost, as joining of European Union would mean UK will not be independent in making decisions and will have to follow the EU rules and regulations despite disagreement. More importantly, the pride of British people will get hurt, as they consider themselves more Englishmen than European.

Similarly consequences of Brexit or leaving EU has its own pros and cons. UK will then have to be prepared for change in EU stance that will begin by altering its migration law. It will compel EU to opt for a policy shift in tariff and regulations that could impact growth on both the sides.

However, final decision will not be known until EU referendum on whether the country should remain in European Union.

Therefore, until referendum, fear of Brexit will remain dominating factor, as investors will be reassessing the risk.

In later half of the calendar year, market will get back to economics and look for Higher GDP Growth and Acceleration in Wage Growth, as inflation will be key driver for next Interest Rate move. Overall UK labor market is doing well.

Hence, Pound Sterling will continue to find sellers on up moves. It has two major barriers on the upside, which should be tough to surpass. Only break of 1.4480 will encourage for 1.4820, which is not a preferred move. On the down side a push below 1.3610 will encourage for my new target 1.3280

December 31, 2015

GBP @ 1.4735 = There is no formal understanding on UK and US Interest Rates, but past record suggest that Bank of England (BOE) have been quick to raise its rate after US rate hike.

Prior to US rate hike BOE Governor Mark Carney in on record having said that the next move in rate hike is likely to be upwards. But this time due to extremely low inflation, chances of referendum to decide UK’s fate about parting away with European Union and ongoing slow growth, BOE will refrain from acting soon.

Hence, one thing is for sure that until referendum picture is very clear, as Cable is likely to find seller on any upsurge.

Technical Analysis = Pound will remain under pressure for some time and will find selling interest on any upside move. It is unlikely to make gains beyond Resistance levels around 1.5410-50. A dips below 1.4290 is required for deeper fall towards 1.4040. However, only break of Resistance levels would encourage for a test of 1.5580, which does not look possibility in next 5-months.

(Disclaimer applies in my post, which means that the perspective is my personal view. I have made every effort to ensure accuracy of information provided. However, accuracy cannot be guaranteed. This article is strictly for information and not intended for Trade or Business Transaction)

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