GBP USD poised for breakdown

Despite a lagging US dollar in recent days and weeks that has been dragged down by dovish signals emanating from the words of Federal Reserve officials, sterling has been even weaker. Weakness in the pound, which has fallen considerably as of late against other major currencies, including the dollar, euro, and yen, has been brought on not only by a rather consistently dovish Bank of England, but also by a looming June referendum that draws ever closer, in which the UK will decide whether or not it will remain in the European Union.

Due in part to speculation over this potential “Brexit,” GBP/USD has continued to trade in a weakened state, consolidating not far above its near-7-year low below 1.4000 that was just established in late February.

Arguably, the currency pair has only been able to stay afloat in recent weeks because of the fact that the dollar has undergone its own beating from the Fed’s seemingly intensifying dovish stance. This increasing dovishness stands in sharp contrast to the central bank’s clearly hawkish leanings towards the end of last year, and more closely aligns the Fed to the Bank of England’s continuous postponement of its own monetary tightening objectives.

A week from this writing, the Bank of England will announce its official bank rate and monetary policy summary. Although the central bank is not expected to change interest rates at that meeting, the policy summary will, as always, be scrutinized closely for any clues as to the bank’s stance on interest rates going forward.

From a technical perspective, GBP/USD appears once again to be poised for a potential breakdown below the key 1.4000 psychological level. With any further breakdown below February’s noted multi-year low of 1.3835, a continuation of the long-term downtrend will have been confirmed, with the next major downside target considerably lower at the key 1.3500 support level.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.