Pound Rises on Hopes of Interim Deal with EU

Pound Rises on Hopes of Interim Deal with EU

Currencies across the board fell against the US dollar on last Wednesday, soon after Janet Yellen, the US Fed Chair, announced a 25 basis point rate hike. The Fed’s statement indicating the possibility of up to three rate hikes in 2017, considering Donald Trump’s policies of higher infrastructure spending, tax rebate, and deregulation, accelerated the rise of the Greenback. Even the commodity currencies, such as the Australian dollar and the New Zealand dollar, were unable to stand against the onslaught. However, it was not so in the case of currency crosses. Several of them, including the GBPNZD currency pair, remained unmoved. However, in the days to come, we anticipate the GBPNZD pair to move upwards due to the reasons mentioned below.

The Pound is currently driven by developments related to Brexit rather than economic data. The possibility of a ‘soft’ Brexit has already kindled hopes of a win-win situation to business establishments in the UK and in the Europe. Furthermore, the House of Lords has voiced for an interim agreement with the European Union such that the UK would have unhindered access to the Europe’s mainland market until the Brexit negotiations get completed. There is also a growing consensus among politicians in the UK that two years would not be enough to arrive at a credible deal after the Article 50 is triggered. Any statement or news that deviates from the ‘hard’ Brexit tends to push the Pound higher.

Last Tuesday, the UK Office for National Statistics reported that consumer prices in the UK increased 1.2% y-o-y in November. Analysts’ estimated 1.1% increase in the consumer price index reading.

The announcement of a Fed rate hike has decreased the attractiveness of the New Zealand dollar as a carry trade currency. The benchmark interest rate in the New Zealand is currently 1.75%. The investors are expected to slowly unwind the long positions in the Kiwi dollar in the weeks and months to come, based on the expectation of three rate hikes in 2017.

The GBPNZD pair is currently trading near the proven support level of 1.7880. The RSI indicator remains above the reading of 50. This reflects bullishness in the asset pair. So, we can expect the GBPNZD pair to begin its uptrend in the short-term.

GBPNZD - Technical Analysis - 19th December 2016

Based on the above analysis, a Forex trader can take a long position in the GBPNZD pair near 1.7880, with a stop loss order below 1.7820. The long position can be sold near 1.8050.

Similarly, a binary trader can gain from the probable uptrend of the GBPNZD pair by investing in a high (equivalent of a call option) contract offered by reputed binary brokers. The investment can be done as long as the GBPNZD pair is trading near the level of 1.7920. The trader should make sure that the contract remains valid for one week from the date of investment.

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