GBPUSD has to break the 1.2798 Brexit low to gather downside momentum - Morgan Stanley

"GBPUSD has to break the 1.2798 Brexit low to gather downside momentum taking its closer towards our 1.24 target.

The July RICS house price index fell 1.2% which should not surprise. The 'Sunday Times' suggested the British government may be not anywhere near in its logistical efforts to draw Article 50 as the government's 'Brexit department' run by Davis is not yet functional. Sources close to the British government also cite French and German General Elections, due in May and October respectively as stumbling blocks.

All in all, there seems to be no desire to draw Article 50 early. Hence Brexit negotiations will be delayed. When Theresa May speaks at the Conservative Party Conference next month she may address her plans and time table for the start of the Brexit negotiations. BoE's chief economist Haldane laid down the reasoning for the BoE's drastic monetary policy response suggesting that 'hundreds of thousands' of jobs were at risk

Therefore we will put little attention towards the July retail sales report due on Thursday. Within the post Brexit world it is the supply side of the economy what matters. Due to the delayed labour market response, retail sales could hold up for longer, but this would come at the prices of a further widening of the British 7% current account deficit.

*Morgan Stanley maintains a short GBP/USD position from around 1.3107 targeting a move to 1.24".