The pound-dollar pair has been trading in the range of 1.2160-1.2300 for the second week, alternately starting from the boundaries of this range. And although neither bulls nor bears of GBP/USD have been able to reverse the situation in their favor, the pair is still "gravitating" to the upper limit of the above range. However, if we ignore intraday price fluctuations, we can conclude that traders are waiting for an information impulse that would help them decide on the price movement vector.
This week, the economic calendar for the GBP/USD pair is not eventful. For the US currency, the key release of the week will be a report on the growth of the basic price index of personal consumption expenditures (which will be out on Thursday). You can also pay attention to the US consumer confidence index (Tuesday). The pound, in turn, will react to the rhetoric of Bank of England Governor Andrew Bailey, whose speech is scheduled for Wednesday, and to the release of data on UK GDP growth (Thursday). The index of business activity in the manufacturing sector of Britain (PMI) and the British house price index will be published on Friday.
We can highlight the basic PCE index and Bailey's speech among the aforementioned fundamental factors. However, there is another factor (already of a political nature) that can have a significant impact on the GBP/USD pair. The fact is that hearings on a bill to amend the provisions of the Protocol on Northern Ireland have begun in the UK Parliament today. The document is already being considered in the second reading.
Let me remind you that the scandalous bill gives the UK government the right to unilaterally change the provisions of the protocol. As you know, after Brexit, Northern Ireland actually remained part of the single European market and the EU customs space, since the parties did not establish a customs border between Northern Ireland and the Republic of Ireland. The Protocol on Northern Ireland is part of the general Brexit Agreement – it regulates the creation of a customs border between two parts of one state – Great Britain and Northern Ireland. In turn, the bill under consideration may de facto cross out one of the points of the Brexit deal.
Brussels initially commented extremely negatively on this bill, accusing Prime Minister Boris Johnson of violating the norms of international law. Similar accusations were made by some of the British prime minister's fellow party members, as well as by Johnson's five predecessors in the premiership. Nevertheless, the deputies of the House of Commons voted for this bill in the first reading, then putting additional pressure on the pound.
To date, the situation has only worsened. The European Commission recently announced that it is preparing two new lawsuits against the British government – "for failure to fulfill two obligations under the protocol on Northern Ireland." According to Brussels, London has not provided "sufficient resources" to border posts in Northern Ireland, where food safety checks should be carried out. Also, the UK has not provided the European Union with the trade data necessary to monitor the movement of goods to the region.
As for the fate of the above-mentioned bill, the Europeans continue to insist that it was and is illegal from the very beginning. According to representatives of the European Commission, we are talking about an international treaty, so London cannot change its terms unilaterally.
Last year, the European Commission suspended the so-called "legal procedure of the proceedings", which could have ended in a trial in a Luxembourg court. The Europeans decided to continue the negotiation process, which, as we see, did not bring any result. There is talk in Brussels today that the EU executive will resume the process launched against the UK last year. According to some experts, if it comes to a court decision, the British may receive significant fines, and a trade war may begin between the UK and the European Union, in which the EU will impose sanctions on British exports.
Representatives of the European Commission expressed the hope a few weeks ago that the problem would be resolved following bilateral consultations. But recently, the rhetoric of the parties has noticeably tightened.
At the moment, the GBP/USD pair is trading at the upper limit of the trading range of 1.2160-1.2300 due to the general weakening of the greenback. The US dollar index shows a downward trend amid an almost empty economic calendar. Traders were not impressed with the latest data on orders for durable goods in the United States: there is a craving for risk in the market, given the overall positive tone in stock markets.
At the same time, it is risky to open longs for the GBP/USD pair, in my opinion: the "echoes of Brexit" may remind themselves in the very near future. To date, the pound is trading in the wake of the US currency, but the Brexit factor is able to pull the pound to the lower limit of the aforementioned price range, even in the face of weak dollar positions. Therefore, if the GBP/USD bulls do not settle above the 1.2300 mark by the end of Monday, it is advisable to consider short positions to the 1.2200 and 1.2160 marks.
