GBP: Cable’s Relief Rally Looks Over - TDS
According to Ned Rumpeltin, European Head of FX Strategy at TDS, GBP/USD looks set to test the year’s lows at 1.3836, with a break below exposing the 2009 base at 1.3503.
"While GBPUSD has stabilized and enjoyed a modest rebound over the last several weeks, we think the tide has turned again in favour of sterling weakness."
"While the UK’s economic backdrop has been lacklustre in recent weeks, it has actually been outperforming consensus expectations. This trend may be approaching a soft patch as Brexit concerns mount, leaving risks that the pendulum may swing back in favour of relatively weaker currency performance."
"This may refocus investor attention on the UK’s sluggish outlook. With the Fed’s recent dovishness now looking absorbed by markets, sterling’s deteriorating interest rate differential vs the USD may begin to weigh."
"Brexit risks remain a significant headwind for the GBP. With the referendum now within the three-month window, these risks have come into sharper focus. This week’s tragic events in Belgium have inched implied betting odds a bit closer to a vote to Leave."
"This combination of factors suggests cable’s downtrend has resumed. With options markets now fully reflecting these expectations, however, we think spot markets are generally more attractive from a risk/reward perspective."
"With medium-term resistance at 1.45, cable seems likely to test the year’s lows at 1.3836. A clean break below this mark puts a re-test of the 2009 base (1.3503) into view."
(Market News Provided by FXstreet)