Fundamental Forecast for GBP: Neutral
Sterling (GBP) Talking Points:
- Sterling rally stalls ahead of crucial meeting.
- Remember the outcome of the Salzburg meeting.
The DailyFX Q4GBP Forecast[1] is available to download.
Next week’s EU Summit meeting in Brussels (October 17-18) has been pinpointed by many as a pivotal point in Brexit negotiations. Sterling has ground higher over the last few weeks on expectations that a break in the current impasse will be announced and that both sides can then fully focus on future trade agreements. I have been bullish Sterling over the past 4-6 weeks, suggesting dip buying, but now recognize that the risk-reward over the next week is not in favor of anyone holding a Sterling position, either long or short, and turn neutral on the British Pound[2].
If a mutually agreeable outcome from the meeting is announced – and it will still have to get through the Parliament – then a much clearer picture for Sterling in the short-, medium- and long-term will appear and traders should feel more confident with the trend. On the flip-side, expectations were high going into the recent Salzburg meeting, only for the EU to re-assert themselves and send PM Theresa May home empty-handed, pushing Sterling lower.
Ahead of this meeting the newswires will be likely filled with rumor and counter-rumor, leaving Sterling very much beholden to sentiment swings. If an agreement is neared or announced, the trend for Sterling will be set. It is better to miss some of a trend before getting onboard and benefitting from it, than it is to take a binary decision ahead of such an important meeting.
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