Eyeing a Fresh 16-Month Low

Sterling (GBP) Talking Points:

  • Heavy USD month-end rebalancing to boost USD.
  • UK budget and BoE ‘Super Thursday’ next week muddies Sterling’s outlook.

The DailyFX Q4GBP Forecast is available to download.

GBPUSD Continues to Test the Downside

There remains little fundamental or technical reason to buy GBPUSD at the moment and it is more likely that the pair will face fresh headwinds in the days ahead. The Brexit background continues to weigh on the British Pound with talk now that negotiations are stymied within the UK government, a situation that may presage a change of leadership in the coming months. While UK PM Theresa May walked away from her meeting with the 1922 Conservative Committee unscathed, talk that there were in excess of 40 letters of no confidence – 48 are needed to trigger a leadership contest – will continue to reverberate and handcuff the PM.

GBPUSD Heading Lower, Ignores PM May’s Reprieve – October 25.

Ahead next week the UK Autumn budget on Monday will give the Chancellor the opportunity to increase NHS funding – a vote pleaser – although his hands will be tied by the ongoing Brexit stalemate, crimping his ability to end austerity measures. Thursday next week sees the latest Bank of England ‘Super Thursday’ when the Quarterly Inflation Report (QIR) is released alongside the laest monetary policy decision. Any downgrading of UK growth, and/or inflation expectations will push back UK interest rate hikes even further.

The US dollar is also likely to get a boost today if Citi Month-end FX Hedge Rebalancing data holds true. The model suggests the strongest month-end USD buying since the global financial crisis of 2008.

The daily GBPUSD chart shows that a break of 1.2800 and 1.27856 opens the path to 1.26620. This level may hold, in the short-term at least, but a break and close below here may see the June 21, 2017 swing-low at 1.25891 come into play.

GBPUSD Daily Price Chart (February – October 26, 2018)

GBPUSD Analysis: Eyeing a Fresh 16-Month Low

IG Client Sentiment data show that retail traders are 77.0% net-long GBPUSD, a bearish contrarian set-up. However, recent daily and weekly positional shifts give us a stronger bearish trading bias.

Traders may also be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

— Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1

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