This week promises to be one of fireworks as we see key data form several of the world’s major economies being released along with announcement and speeches by influential figures.
The UK is first up today with Bank of England’s Carney taking the podium in London to deliver a speech headed “Policy Issues Affecting the Bank of England”, in which he will outline several factors which he sees as key to the future outlook of the UK economy and thus the pound and the FTSE.
Given the recent tone of negativity surrounding the UK economy, spurred on by the British Prime Minister, Teresa May, who has left little doubt that there will be a hard Brexit as she continues to rev up the aggression in hopes of showing her EU counterparts that she means business, which has seen the sterling punished as GBPUSD falls back below 1.2000, todays speech will be of importance as Carney is likely to try and calm markets. If he remains optimistic, we will likely see the GBP recover while a negative tone is likely to see the GBP fall further.
The effects of Carney’s speech will however be short lived as markets quickly turn their eyes to tomorrows all important speech by Prime minister May. In her speech, she will finally give some clarity to the upcoming Brexit strategy and she will either stand behind her aggressive nature, insisting on a hard Brexit or she might soften her blow and give options as she looks to test investors and policy makers alike. If she sticks to her guns, we will see the GBP continue to drop as bears look to test the technical targets of 1.1800 and 1.1500 against the USD, as the pair continues to drop, taking the post referendum drop to well beyond 20%. However, if she strikes a softer tone, in which she sees comprise as the way forward, we would see bears quickly unwind their positons as the GBP strengthen, placing 1.2500 back on the cards for the GBPUSD all the while giving May and her team a good gauge of how markets will react to both a soft and hard exit, allowing them to tactfully design their Brexit strategy.