Home FX British Pound: USD/GBP (GBP=X) further downside

British Pound: USD/GBP (GBP=X) further downside

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British Pound: USD/GBP (GBP=X) further downside

Over the course of the past week, Sterling has now fallen 2.36% against the Euro and 2.5% against the Dollar as a fresh impulse of selling grips the markets as traders and investors race to find new valuations for the ‘no deal’ Brexit they now assume will occur on October 31.

Following the sharp falls witnessed at the start of the week, foreign exchange analysts are updating their views on the prospects for the British Pound: heading into the second-half of 2019 consensus amongst analysts had been for both GBP/EUR and GBP/USD to end the year materially higher than current levels. 

But unless a deal is reached by the EU and UK ahead of October 31, these forecasts will prove to be wildly out of touch.

“We see more GBP weakness to come. The current sterling meltdown is in line with our view that GBP risks are heavily skewed to the downside given the Brexit uncertainty and rising odds of an early election (our base case),” says Petr Krpata, a foreign exchange analyst with ING Bank N.V.

ING are forecasting the Pound-to-Euro exchange rate to head towards the 1.05 level with the Pound-to-Dollar exchange rate falling to 1.18.

Simon Harvey, FX Analyst at Monex Europe says he sees GBP/USD going below the 1.20 level:

“Downside protection on GBP/USD over the 3-month horizon is edging towards levels not seen since March where the UK threatened to slip out of the EU prior to the extension. This is occurring despite cable sitting a full 6 points lower than it did back in March (it was at $1.30+).

“Current momentum and market positioning show markets think lower, or don’t want to run the risk at least. We agree, targetting sub $1.20 this quarter on GBPUSD.”

What could offer the Pound support from here and limit the ongoing decline in value?

“We need to see the EU provide Boris something new to work with,” says Rochester, adding that Johnson could also row back from recent comments, but “he looks to be doing the opposite,” notes Rochester.

For now markets appear to believe that the EU and UK are simply too far apart on the issue of Brexit to be brought back together. For one, the EU have said the Irish backstop contained in the existing Withdrawal Agreement has to stay, Johnson says it has to go in its entirety.

Senior EU figures have been notably silent on the matter of Brexit this week, we will be watching for any reactions.

“Let’s wait and see what he can achieve in his talks with EU officials over the coming days and weeks – if such talks will happen at all, since Johnson requires the EU to accept his conditions first (new negotiations) – and whether his Trump-style negotiations will lead to success. I fear not, and therefore remain a Sterling bear,” says Praefcke.

Overall, the bias in prices is: Downwards.

By the way, prices are vulnerable to a correction towards 1.26.

The projected upper bound is: 1.23.

The projected lower bound is: 1.20.

The projected closing price is: 1.21.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 3 white candles and 7 black candles for a net of 4 black candles. During the past 50 bars, there have been 20 white candles and 30 black candles for a net of 10 black candles.

Three black candles occurred in the last three days. Although these candles were not big enough to create three black crows, the steady downward pattern is bearish.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 6.4740. This is an oversold reading. However, a signal is not generated until the Oscillator crosses above 20 The last signal was a buy 14 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 26.56. This is where it usually bottoms. The RSI usually forms tops and bottoms before the underlying security. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 14 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -251.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a buy 4 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 2 period(s) ago.

Rex Takasugi – TD Profile

FOREX GBP= closed down -0.006 at 1.216. Volume was 16% below average (neutral) and Bollinger Bands were 26% wider than normal.

Open     High      Low     Close     Volume___
1.222 1.223 1.212 1.216 116,814
Technical Outlook 
Short Term: Oversold
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period     50-period     200-period
Close: 1.24 1.26 1.28
Volatility: 11 8 10
Volume: 112,377 125,818 163,471

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

FOREX GBP= is currently 5.4% below its 200-period moving average and is in an downward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect volume flowing into and out of GBP= at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on GBP= and have had this outlook for the last 15 periods. Our momentum oscillator is currently indicating that GBP= is currently in an oversold condition.

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