GBP Decline 'Too Far Too Fast' and a Temporary Cessation May Be in Order

GBP Decline 'Too Far Too Fast' and a Temporary Cessation May Be in Order

29 February 2016, 16:50
Vasilii Apostolidi
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Global payments provider Associated Foreign Exchange (AFEX) expect the pressure on the pound to ease, although they are by no means bullish the currency yet.

Analysts at AFEX have said that, “It would not surprise,” them to see, “at least a temporary cessation in (pound) selling pressure during the next few weeks.

“Given how far and fast values have already eroded in 2016.”

However, they are quick to dispel any notion that the pound is about to reverse and start to move higher again, arguing:

“..but without any obvious base work rebounds will remain short-lived.”

With reference to the Pound Index, they say it has probably been in a corrective move since 2009, and the current move lower is therefore a resumption of the secular down-trend previous to that:

“Taking the Sterling Index for example, although some buying interest may well emerge at 84.00 or 82.50 areas, the entire rebound from 73.50 (in 2009) to 95.00 (last year) is seen as corrective and complete.”

AFEX, further argue that GBP/USD, “remains under significant pressure,” and that although 1.4000 has historically provided good support, “..values appear to be breaking lower again and unless this level is both regained and held over coming sessions it is difficult to envisage even an interim low forming before another examination of 1.3500 (early 2009 bottom) is witnessed.”

Whilst they also hold that the current down-move has reached oversold extremes:

“Sterling prices remain vulnerable on the downside in coming sessions with no obvious bottom implied.”

They see little support in the 1.30s, to prevent a slide lower:

“..some support exists at 1.3700 but the market could conceivably stair-case its way toward 1.3550 thereafter before stronger demand is uncovered.”

As far as upside goes, scope is capped in the early 1.40s:

“..resistance around 1.4100 then 1.4250 zones and rally scope appears limited thereafter in the absence of a confirmed low.”

GBP/EUR Outlook

Basically, the pair is in an established down-trend which is expected to extend to at least 1.2500:

“Some support should emerge on approach to 1.2500 but any rebounds from this psychological point will be viewed as corrective and 1.2250 or so now looks to be achievable as well going forward.”

A change of outlook would require a break above the key 1.3000 handle:

“Interim rally attempts face little meaningful resistance until 1.2800 again initially though only beyond the distant 1.3000 level as well is overtly positive.”

EUR/USD Outlook

In the case of euro-dollar AFEX highlights the fact the pair is still consolidating in a long-term sideways move:

“Recent EUR weakness looks to be another component of an ongoing/incomplete triangular re-consolidation pattern and thus for now at least directional bias remains effectively neutral as prices continue to pivot 1.1000 or so in effect.”

For AFEX 1.1400 remains a line-in-the-sand which until breached keeps the threat of bears still alive:

“An eventual downside resolution is still readable while this remains below 1.1400 but no direct route yet exists back to 1.0465.”

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