Low blows and sterling lows

A torrid week in politics and dovish BoE comments are grim news for the pound

Considering the clobbering from headlines it received this week, sterling is holding up quite well, though appearances can be deceptive. It is acknowledged that whilst The Supreme Court’s “unlawful” ruling on Parliament’s suspension lowered no-deal Brexit risk further, it did nothing to reduce uncertainty. And it was followed by one of the most rancorous, bad-tempered weeks in politics seen for years, with consequences likely for House of Commons relations that should make bridging divides even more difficult. Then on Friday, the Bank of England’s chief economist, Michael Saunders, indicated that lower rates might be required whether Britain leaves the European Union with a deal or not.

Meanwhile, an election—that would add further dimensions of delay and unclarity to the Brexit process—hangs over the pound. Opposition parties have made it clear they won’t use powers implied by the Tories’ lack of a majority to topple the government, which would start the clock for an election, until Prime Minister Boris Johnson moves towards an extension to the EU’s 31^st October Brexit deadline. He has suggested he would rather be dead than request one.

Chart thoughts

Against this backdrop, sterling remaining above early Friday lows for all of the European session may not be as promising a sign as it appears. This is still the worst week for the pound since early August, with a 1% slide against the dollar since Sunday night’s open. True, the pound retains around half of its 5.2% ramp off virtual 34-year lows between the start and the middle of this month but the up leg that topped at $1.2583 on 20^th September is immaterial for the broader picture.

The year’s downtrend remains very much intact. In the chart below, the diagonal line bisected on 19^th and 20^th September falls from GBP/USD’s cycle high on 17^th April 2018. The line clearly resisted the updraft from lows, forcing price back to the band encompassed by the energetic swing high of 27^th August pretty much at $1.2310; with added weight from that day’s low being pretty much at $1.2210. Though ripped apart a few days later, the range remains resonant given a tag as support on 5^th of this month very near the $1.2210 low, which cued sterling’s latest attempt to escape its trend.

Cable now eyes a weekly close within the band. It’s below the top, though it has marked a low almost identical to the one at the bottom of an ambiguous hammer on 8^th September. As falling momentum gathers pace, signified by an ailing RSI, this is not much of a promising picture for buyers.

Holistically, cable looks to head lower, with some corroboration from the wedge/pennant continuation pattern that has been broken this week. Higher risk now seems to reside on the downside and that implies a return to the complex of lows set up last month which echoed a host of struggles for the pound as it ground out multi-year bottoms in late 2016 and early 2017. As such, this suggests coming sessions will feature a return to the $1.21 handle and possibly below.

GBP/USD – Daily [27/09/2019 20:05:10]

Source: Tradingview/City Index

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.