BoE’s Carney Has to Present Strong Front or Sterling Will Plummet

Hard exit talk drove the GBP/USD below the 1.2000 level on Monday as support for the Sterling continued to erode, putting the Forex pair on course for an eventual test of the Flash Crash low a 1.1739.

Later today at 1830 GMT, Bank of England Governor Mark Carney is scheduled to speak. The speech was strategically scheduled to precede Tuesday’s speech by U.K. Prime Minister Theresa May. She is expected to reveal more details of the U.K.’s plan for a hard exit from the European Union. The government’s strategy is to control the migration of immigrants into the U.K. Last week, when May suggested this, the British Pound plunged below 1.2200 for the first time since October.

Carney’s speech was scheduled to precede May’s speech because the BoE wants to show that it is in control of the situation and stands ready to provide financial aid wherever it is needed. In his speech, Carney has to present a strong front. If he comes off as dovish then the British Pound may plunge further.

Gold

The weakness in the British Pound has encouraged investors to buy gold as protection against the falling currency. Another steep sell-off by the Sterling could spike gold prices higher. Taking out last week’s February Comex Gold’s high at $1207.20 could sent prices as high as $1232.70.

Crude Oil

Trading is light in the U.S. West Texas Intermediate Crude Oil market on Monday due to the U.S. bank holiday. The near-term view of this market suggests a sideways trade due to optimism over the OPEC/non-OPEC deal to curb production, trim the excess supply and stabilize prices and worries over increased U.S. production and lower global demand especially from China.

Short-term, crude oil could be under pressure due to uncertainty ahead of a key meeting in Vienna on January 21 -22. At the meeting, OPEC and non-OPEC countries are expected to discuss compliance with the plan to reduce output. Traders have been waiting for hard numbers that show which countries are complying with their pledges to cut production. After this meeting, traders may be able to better determine if the plan is going to work based on the numbers. This will determine the short-term direction of the market.

Most experts agree that 100% compliance will be necessary for the plan to work. Anything less could be bearish for prices especially since countries like Libya, Iraq and Nigeria are increasing production due to exemptions from the plan and the U.S. is showing signs of ramping up production.