GBP/USD forecast - page 22
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One has to be ludicrous to trade GBP now
That is a perfect situation for 95% :)
Parity for British Pound to Euro Exchange Rate and 1.20 v US Dollar says HSBC’s David Bloom
HSBC tell us why Pound Sterling is still pointed lower against both the US Dollar and Euro.
Pound Sterling has really outdone itself in terms of delivering an anticipated Brexit-related slump.
The currency was easily the worst-performing unit it the G10 complex having fallen steadily through the opening week of October on the realisation that the UK government is seeking out a 'hard Brexit' during negotiations that will start in 2017.
Sterling has fast exceeded consensus forecasts with a second post-referendum leg lower being turbo-charged by the massive slump of confidence triggered by the flash crash suffered in early Asian trade on Friday the 7th October.
Sterling plummeted in thin market conditions with many analysts blaming algorithmic trades for the slump.
Whatever the case, the pace of decline has really shaken up currency markets, particularly the institutional research segment.
The problem for analysts is that Sterling has fallen towards consensus forecasts some three months ahead of schedule.
For instance, by January consensus forecasts for the GBP to EUR exchange rate are for a reading of 1.1360:
And the consensus forecast for GBP to USD is at 1.2454:
“To adjust for the recent move in the GBP and uncertainty unleashed by this flash crash, we adjust the GBP forecasts lower,” says Aurelija Augulyte at Nordea Markets who appears to have been quick off the mark in adjusting expectations for Sterling.
Some forecasters are looking pretty smug at this juncture.
We always viewed UBS as outliers for their parity forecast on EUR/GBP; however even UBS could be wondering if they were overly optimistic as the call for parity stood for late 2017.
HSBC Stick to Forecast for Parity in EUR/GBP
Analysts at HSBC join peers at UBS in forecasting the Pound to par the Euro over coming months.
For HSBC's Strategist David Bloom further declines in the currency are certainly warranted as the UK unit shifts from a cyclical currency to a political currency that must express the risks placed on the economy by political developments.
In the past bond markets would have taken the role of absorbing political risk sentiment, but in the age of quantitative easing that role falls almost solely on the currency.
"We used to have the bond vigilantes. These were the collective that punished western governments via higher bond yields when they vehemently disagreed with policy. This helped keep government fiscal ambitions in check. With QE this mechanism is dead," says Bloom.
The question asked of investors, poses the analyst, is do you want to buy a currency that has massive twin deficits with an unknown political direction and for that risk you can get zero rates?
"In other words we should have some kind of risk premium which through QE is not showing up in bond markets. It’s the currency that needs to offer this risk premium," says Bloom.
Bloom argues GBP has gone from a cyclical to a political and structural currency.
"The structure and politics are conducive to a currency that needs to fall to a level that causes balance. That balancing act is and has been in our eyes is still a lot lower than where it is today," says Bloom.
HSBC continue to look for GBP-USD at 1.20 by year end and 1.10 by end 2017, taking EUR/GBP to parity
Could the GBP actually be worth less than a EUR this time next year?
Yes, remember once spreads are subtracted the retail rate being offered will fall well below a spot rate at 1:1.
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British Pound Soft Against Euro, Dollar Monday, Calling a Recovery seen as a Fools Errand
Pound Sterling retains a heavy tone at the start of the new week with traders unwilling to bag a bargain on the currency even if it is artificially cheap.
~ Pound to Euro exchange rate today: 1.1109
~ Euro to Pound Sterling exchange rate today: 0.9004
~ Pound to Dollar exchange rate today: 1.2414
Sterling is a wounded currency suffering from a major confidence failure that was compounded in the worst possible way by Friday the 7th’s ‘flash crash’.
At about 1.24 against the US Dollar it’s down almost 16% this year, making sterling the worst performer among 31 major currencies tracked by Bloomberg.
GBP/USD plunged to the lowest in more than three decades last week on speculation the UK economy will weaken in the aftermath of Britons’ June vote to exit the European Union.
At one point last week, GBP/USD had plummeted by around 10%, to a low below 1.15, before recovering some poise.
“The Pound’s pounding has shown no signs of disappearing over the weekend, with sterling suffering from the very start of the session,” says Connor Campbell at Spreadex in London. “With little data to distract investors from the potential of a ‘hard’ Brexit the trends that dominated last week have fed into the atmosphere this Monday.”
Our technical analyst Joaquin Monfort reports that on a number of counts Sterling is looking oversold and therefore the big risk over coming days is likely to be to the upside as the market stabilises.
To be sure, a correction is due at some stage, but calling the timing on such a move is the tricky part.
Brexit risks matter more than the data for the GBP. We have been recommending to sell the rallies in GBP, but also believe that GBP will eventually strengthen if the data remains so strong; getting the timing right is tricky, but it is a matter of time,” says Athanasios Vamvakidis at Bank of America Merrill Lynch.
What is guaranteed is a continuation in volatility.
“While we suspect the sell-off is overdone, until the dust settles, the Pound is likely to remain especially susceptible to bouts of volatility,” says Adam Chester, Head of Economics, Commercial Banking at Lloyds Bank.
Buying Euros - Where you Stand
The spike down to the 1.06-1.-5 region last Friday has seen most major technical support levels broken ahead of the 1.02 lows set back in December 2008.
Although we have significantly retraced, momentum has breached its recent highs, and the pair closed below the psychological 1.11 level.
The best British Pound to Euro exchange rate of the year to date (past 365 days) was 1.432 achieved on 2015-11-19.
Today's exchange rate is at 1.109, this is 22.56% off the best exchange rate of the past year-to-date.
The best British Pound to Euro rate of the last month (last 30 Days to date)
was at 1.1873, today's conversion is 6.59% off that rate.
Buying Dollars - Where you Stand
GBP/USD managed to close last week near post “flash crash” highs, rallying more than 200 points from London session lows at 1.2228.
Short term sentiment around GBP is likely to remain bearish and the market has been given fresh potential downside targets to aim for courtesy of the flash crash.
Bloomberg’s median low was set at 1.1841, Reuters traded low is set at 1.1491.
The best British Pound to US Dollar exchange rate of the year to date (past 365 days) was 1.5508 achieved on 2015-10-15.
Today's exchange rate is at 1.2417, this is 19.93% off the best exchange rate of the past year-to-date.
The best British Pound to US Dollar rate of the last month (last 30 Days to date) was at 1.3346, today's conversion is 6.96% off that rate.
source
GBP/USD: A Corrective 4th Wave Before Next Leg Lower
GBP was front and center last week as the currency has broken a primary trendline formed across the lows since ’93 (1.2788)
Going back even further, GBPUSD started a multi-year corrective process at the peak in ’07, within which it is currently in the later stages of a final C wave. Because of the impulsive nature of wave A (from ‘07 through ‘08), it’s actually not too surprising to see an equally impulsive sell-off in wave C (since Jun. ’14).
In the nearer term, it may have just recently completed a 3 rd of 5-waves from Jun. ’14 (i.e. within the larger degree C leg). It has come close enough to reaching the ideal target at 1.1681 (1.618 from Jul. ‘15). '
As such, a period of counter-trend corrective price action seems likely, before the next leg lower. Put another way, it’s now likely based and started a corrective process/ 4 th wave.
A 4 th wave typically retraces back into wave iv/3 territory; in this case 1.2798-1.3445. It also often retraces between 23.6% and 38.2% of the length of wave 3; also ~1.28 and 1.34.
Bottom line, GBPUSD may consolidate in the near-term, but it is likely to continue declining over time.
source
Regulation to limit risk-taking leading to bouts of extreme volatility in FX. (Hi GBP!)
That's the gist of a Wall Street Journal article, citing the GBP collapse last Friday
British Pound to Euro Exchange Rate: Sell-Off Exhausted, But no Let up in Selling Pressures
Pound Sterling continues to weaken against the Euro as another noted analyst joins the camp of forecasters who expect GBP/EUR to fall to parity over the long-term.
GBP remains under notable pressure against both the Dollar and Euro at the time of writing as it is yet to recover from the hangover following Friday's flash-crash.
"There's no new news or data in the UK, but the Pound's still falling. In real effective terms, Sterling is 10% lower than it was in 1992 after leaving the ERM and is now weaker than it was after Lehman," says Kit Juckes at Societe Generale writing from London.
Press comment is now shifting to embracing the positive effects of a weak Pound and Juckes says in due course that'll be true but warns any further weakness from here might simply reflect loss of confidence and be bad for UK assets (gilts, equities, house prices, you name it...) in general.
"The market's very short, but if Sterling weakness starts to feed weakness across assets, we will have all the conditions for a classic overshoot to start," says Juckes.
GBP/EUR started the week at 1.11 but is now intent on testing 1.10.
Expect sell-offs to be deep and recoveries light.
"Rallies will now be seen as a response to immediate oversold readings only," says Lucy Lillicrap at AFEX in London, "initial support probably extends to 1.0950 or so but rallies face resistance at 1.1225 then 1.1325 as well."
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