Global macro overview for 29/06/2017:
The most surprising statement from yesterday's joint panel conference of four central bankers on ECB Forum on Central Banking in Sintra was made by Bank of England Governor Mark Carney. During the discussion, he said that there may be a need to limit the monetary stimulation of the British economy if the trade-off facing the Monetary Policy Committee (MPC) continues to lessen. In these circumstances, the policy decision would become more conventional. It stands in an obvious contradiction with his comments less than two weeks ago, so this rhetoric pushed the GBP / USD forward towards 1.3000 again.
In the UK, just after last year's referendum, the Bank of England, fearing a very severe slowdown, loosened its policy. Pessimistic forecasts did not materialize. Instead, there was a threat of higher inflation forecasts driven by Pound weakness. This is why the whole cycle of the interest rate hikes is not really on the table right now and possibly only one rate adjustment of last year's loosening could be expected. Such a scenario is already priced in by financial markets properly. It turns out that the financial markets are discounting rates by the end of 2018 by over 35 bps. This means that - contrary to monetary policy - the political risk associated with the Brexit negotiations and the weaker government is insufficiently reflected in the Pound valuation. Moreover, any further deterioration in the condition of the UK economy, for example as a result of slowing down real wage dynamics will increase the bearish pressure on the Pound, especially on the GBP/USD pair.
Let's now take a look at the GBP/USD technical picture on the H4 time frame. The market has managed to break out above the golden trend line resistance around the level of 1.2915 and now is trading close to the technical resistance at the level of 1.2978 in overbought conditions. The next support is seen at the level of 1.2918.
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