Clinton-Trump Debate Arrests GBP/USD Rate's Downtrend
The GBP/USD is forecast to remain under pressure over coming weeks but we note the prospect for a relief bounce following a broadbased USD weakness that has followed the first US Presidential debate.
Pound Sterling was seen struggling at the start of the new week having been quoted as low as 1.2916 at one stage.
We wrote that one event that could potentially support the GBP/USD was the first presidential debate between Hillary Clinton and Donald Trump.
It would appear that this suggestion had some merit as we see the US Dollar broadly weaker following the debate.
Clues to US Dollar weakness are however more evident in other pairs.
"The market response to the first US Presidential debate points to a ‘win’ for Clinton. USD/MXN – the closest FX proxy for Trump’s election prospects – was down 2% in the aftermath. USD/CAD also dipped slightly lower," says Elsa Lignos at RBC Capital Markets.
Bookies' odds show a fall in probability of a Trump victory of ~6%, while FiveThirtyEight’s models also show a 3%pt fall in Trump’s probability of victory, retracing from yesterday’s all-time high.
The safe-haven Dollar fell while risky assets such as stock market futures rallied showing that traders feel more confident on the prospect of a Clinton rally.
The Pound - which is also now considered a risky asset in light of the Brexit debate - naturally rallied.
The next debate will be held on Sunday 9 Oct with the third and final debate on Wed 19 Oct, two weeks ahead of Election Day.
Latest Pound / US Dollar Exchange Rates
  | Live: 1.3323▼ -0.02%12 Month Best:1.3789 |
*Your Bank's Retail Rate
| 1.287 - 1.2924 |
**Independent Specialist | 1.3137 - 1.319 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
GBP/USD Remains Negatively Aligned
Looking for clues on future direction in the pair we note the currency remains negatively aligned as it trades below short, medium and longer-term moving averages.
Furthermore, where GBP/USD looked as though it was forming a double bottom previously, it now looks to be forming a symmetrical triangle instead.
This is an important distinction because the double-bottom would have suggested a recovery was due.
The triangle looks like it has completed the first four waves and - ‘a-d’ - and is now forming wave ‘e’, which once complete will mean the triangle will have formed the minimum compliment of waves.
The triangle is more likely to break lower than higher, in line with the previous trend.
A move below the 1.2863 would signal a break down to the next target at 1.2700.
Alternatively, a move above the 1.3447 highs would indicate a probable rally higher to an upside target at 1.3600.
"The British Pound continues to look bearish and macro capital flows remain negative the Pound at quarterly, monthly and weekly chart level. A breakdown through the recent lows on the daily chart could open the door to further significant declines," says Phil Seaton at LS Trader.
Notable US Data Releases on Tap
Both currencies are likely to be highly sensitive to data scheduled for release.
A considerable amount of data is scheduled to be released for the US dollar in the week ahead.
The first significant release is Services PMI for September on Tuesday, which is expected to edge up to 51.2 from 51.0 previously.
Consumer Confidence on the same day is forecast to slide to 99.0.
On Wednesday Durable Goods Orders headline and are expected to fall by -1.5% in August mom, from 4.4% in July.
Analysts often also look at Core Durable Goods Orders as it can be a more reliable barometer since it cuts out volatile components such as expensive one off purchases of large vehicles and airplanes.
Core Durable Goods is forecast to fall by -0.4% from 1.3% previously.
Thursday sees the release of the second estimate of Q2 GDP; the preliminary ready showed a 1.1% rise; the reading on Thursday is forecast to surpass that and come out at 1.3%.
Part of a welter of home data is Pending Home Sales also on Thursday, which is forecast to come out at 0.3% m-o-m in August, falling from 1.3% previously.
On Friday Personal Consumption Expenditure (PCE) is released and forecast to show a rise of 0.2%.
PCE is an indicator keenly watched by the Fed, for whom it is the preferred inflation gauge.
Data for the Pound Sterling
Friday (September 30) sees the release of the most significant data for the pound, this week, in the form of the first revision of second quarter GDP.
The preliminary result already released, surprised to the upside, coming out at 2.2% rather than the 2.0% forecast, but on Friday we shall see if that upbeat result holds.
Although it does not cover much of the period after Brexit, and is therefore not representative of the impact of the referendum, it still reflects the high degree of uncertainty prevalent in the run up to the vote, and so is some sort of barometer for how the economy coped under uncertain conditions.
Second quarter Business Investment is also out on Friday and will also be closely watched by analysts trying to make sense of how well the economy has managed with the uncertainty stemming from the referendum – again in the run up to the vote in this case rather than afterwards.
Common sense dictates that Business Investment would fall in the run up to the referendum as many businesses would have delayed investment decisions on major projects until after the vote, however, Friday’s data will tell for sure.
There is a possibility of a surprise to the upside since data has up until now, more often than not, beaten expectations which were tilted to the downside for the referendum period.
Nationwide house price data is the other major release on Friday, whilst BBA Mortgage Approvals data, out on Monday (September 26) is a major release for the week.
GBP Highly Sensitive to Brexit Headlines and Sentiment
However, for the pound the dominant theme continues to be the impact of Brexit and how far data suggests economic damage has been done.
The UK currency came under notable selling pressure over the course of the past week thanks to negative headlines associated with impending Brexit negotiations, and this could well be the case again over coming days.
The UK government was looking like it might be preparing to take a hard-line in negotiations after Chancellor Hammond said he thought it unrealistic to expect to remain a member of the common market and not have freedom of movement, and that therefore Brexit would probably not result in an optimum trade deal for the UK.
If the UK left the common market as well as the EU as Hammond seems to be suggesting then UK Financial Services companies would lose the right to trade freely across the EU, a trade perk known as passporting rights, and this would have a severely detrimental impact on the currency.
As such the pound is likely to be supper-sensitive to Brexit political rhetoric in the week ahead.
