Pound turns bullish on expectation of Brexit breakthrough

As the UK inflation rate nudged toward 3%, the Pound turned bullish in September. The rate hike in November ensured a consolidation of the Pound against most of the G10 currencies, including the Swiss Franc.

Since September 11, the Pound had rallied by about 1000 pips to hit a level of 1.3328 against the Franc. We anticipate the uptrend to continue in the week ahead due to the facts discussed underneath.

Last week, Donald Tusk, the president of the European Council stated that the EU is ready to begin talks on a post-Brexit trade deal in Brussels next month.

The announcement came after Tusk and Theresa May met each other to break the deadlocks. It can be remembered that May had secured cabinet’s approval to increase the UK’s offer on the Brexit bill, in return for a future trade deal. Rough estimates indicate the UK will offer around €40 billion, a sum which Brussels had indicated as the minimum amount needed to take the talks forward. The Pound is also expected to get a boost from the positive economic data.

RT UK

The Confederation of British Industry reported an increase in retail sales in the year to November, following a sharp decline in the previous month. The latest Quarterly Distributive Trades Survey pegged the CBI realized sales index reading at 26, versus analysts expectation of 5. In October the index reading plunged to a level of -36. The survey of 118 respondents also revealed that the average selling prices see its strongest growth in 26 years. Further, the respondents expect a similar growth next month. Most of the growth was contributed by clothing and grocery sales.

In Europe, the Franc was again talked down by Thomas Jordan, President of the Swiss National Bank. Jordan stated the SNB would continue to maintain negative interest rate and intervene in the market, as and when necessary, as the Franc still remains over valued. Jordan also clarified that the SNB has no intention to create an undue advantage to the exporters of Switzerland, at the expense of companies in the US or elsewhere. The above discussed developments are expected to spark a rally in the GBP/CHF pair.

Technically, the GBP/CHF pair has strong support at 1.3040. The momentum indicator is making a positive divergence with the price, while the stochastic indicator is in the oversold region. Thus, we can expect a rally to begin soon.

A long position in the GBP/CHF pair is what we prefer at this point in time. The ideal entry and exit levels are 1.3040 and 1.3260. As a responsible trader, we wish to place a stop loss order below 1.2930.

Additionally, we may also purchase a call option offered by a binary broker. The investment will be made when the GBP/CHF pair trades near 1.3040 in the currency market. Another condition to be satisfied for investment is the call option contract should be valid for a period of one week.