BoE Gov Carney speech and the pound

In his speech today BoE Governor Mark Carney said that global growth this year is expected to be at around 3.25%. Since the Brexit referendum, the pound has fallen 25%, causing incomes to fall, and slowdowns all over the economy. Historical stability, solid financial institutions and a well-built social/political system allow the country to maintain afloat. Carney argued for a more inclusive stance from world governments. If services are allowed the same freedom across borders, as goods, then we could have a fundamental shift towards a new economical horizon. If a hard Brexit is to be, we will default to the rules of the World Trade Organization.

BoE view of risks on the horizon
1. Complacency. If expansion is prolonged across the world, the following crisis will be much bigger.
2. Possibility of a material slowdown in China. Chinas stability over the last 30 years is magnificent. Post 2008 they have been using two tools - over crediting and shadow banking. A 3% slowdown in China would equal 1% world slowdown and 0.5% slowdown in the UK.
3. Brexit could be the tipping point of the world economy going into a recession. Openness of markets and business prospect are leading drivers of growth.

The pound is very much in a down trend. We do not recommend opening long positions in this currency. At the current level the pound is up against the 38.2% Fibonacci level as a resistance level. Yesterday the pound fell right through this level and did not return for a retest. Mark Carney the Governor of the Bank of England did not provide much detail on why yesterday’s numbers were so off. He did use the word “recession” three times. The price could test around 1.3000 again this week, from which it would be wise to open a short position. A stop loss should be placed at 1.30250 which is at the level of the 200-MA. If the trade goes in our favor, the target would be just above 1.26750, the closest support level.