I wrote last month to "expect additional weakness longer term (into at least 1.70)." That forecast was far too conservative as the GBPUSD fell to its lowest level since the summer of 2002. Price is at a support line that began at the 1984 low. This line should hold up the GBPUSD for at least several weeks but expect the line to eventually be broken and for price to drop below 1.3680 in order to complete a flat that began in 1992 (like the EURUSD).
Deterioration in UK economic conditions and a dovish central bank have forced continued declines in Bank of England rate expectations and likewise led to British Pound declines. Interest rate markets forecast that the British Pound - US Dollar interest rate differential will shrink by an incredible 236 basis points (2.36 percent) in the coming year of trading-cutting the British Pound's interest rate advantage by more than half against its US counterpart. Given that the British Pound was only recently one of the highest-yielding G10 currencies, we expect that a clear deterioration in rate forecasts could have an especially detrimental effect on the GBP exchange rate. As such, our British Pound-US Dollar fundamental bias will likely remain bearish for some time to come.
British Pound Forex Futures Positioning Signals Short-term Correction
Written by Jamie Saettele, Senior Strategist and David Rodríguez, Quantitative Analyst for DailyFX.com
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