The US Dollar has been under pressure ahead of next week’s European Union/UK trade talks with the United Kingdom. For most traders this is somewhat predictable, and I’ll discuss why this could turn out to be a good time to add the USD to your trading portfolio.
The European Union/UK trade talks are set to kick off in Brussels this Thursday, and a lot is riding on the negotiations between the UK and the EU. A failure to make any sort of progress will push GBP/USD down until the February meeting and hopefully then turn around and boost the price again.
The first stage of the talks between the UK and the European Union will focus on issues relating to agriculture, health care, and the Single Market. These are the main points that the UK wants addressed in any trade deal.
If the EU and UK succeed in reaching an agreement, then GBP/USD could quickly fall to the low $1.50s and also end up slightly higher than where it currently trades. However, that doesn’t mean that you should jump on the opportunity to add the GBP to your trading portfolio now, because at this point you’re basically gambling on the outcome of the talks.
I’ll outline some reasons why this won’t happen and how the GBP/USD could end up being the beneficiary if they do fail. This will help you understand why you need to take some time to learn about the current environment and how it can affect the current trends in the market before you jump into a trade.
The British government is actually pressuring the EU to get a deal done as quickly as possible, so they have the British people looking to be rewarded for voting to leave the European Union. If the EU and UK fail to reach an agreement, then GBP/USD could easily fall to the low $1.50s and could spike back up to the $1.80s or higher.
However, if the European Union manages to achieve an agreement, then the US Dollar will benefit. This means that as soon as the talks conclude, you could buy more GBP and earn more profits.
One key reason why GBP/USD could be benefitted from the failed EU talks is that there’s going to be a tremendous amount of money coming into the currency market as a result. There’s also a strong chance that the EUR/GBP could begin to break above the 100 level.
As the EUR rises above the $1.80 mark, then it will soon be replacing the British Pound as the second most traded currency in the world. That means that this could be a great time to add the GBP to your portfolio as this has been a major driver for the USD.
The problem with buying the GBP now is that there are plenty of factors that could potentially affect the GBP/USD. If you had invested in it before the Brexit vote, then it may have been a good time to sell off those assets and start buying the USD.
Now, that’s not to say that the GBP/USD can’t dip again to lower than the current levels, but it’s much more likely that the EUR/GBP will increase from the initial Brexit fears and continue to rise. Therefore, it’s very likely that you’ll only get the small win here and you’ll get stuck with the few cents gain here, rather than a full dollar gain.
So, the short answer to the question “Should I trade the GBP/USD now?” is “Yes” but only if you don’t mind losing some money along the way!