What is the outlook for GBP in the coming weeks?


Sterling in general is trading from a “heavy” perspective with numerous technical support levels having been taken out in the last week, and with the dizzy heights of 1.6380 (the high attained on the 2nd January amid all the “risk on” furore) now seeming like a lifetime ago.

In the last week EUR/GBP has been a major driving factor behind keeping GBP soft, as it powered higher through key resistance at 0.8333 (GBP/EUR 1.20 equivalent) eventually making a clean break up through the key 0.8400 level.  Worries of a “triple dip” recession and a likely and much talked about ratings downgrade in the face of ongoing poor economic data (last week’s UK Retail Sales came in softer than expectations)  will keep GBP on the back foot going forwards.

This is a contribution by Richard Wiltshere, a market strategist for ETX Capital. We provide spread betting on forex and other markets, find our forex spreads here: http://www.etxcapital.co.uk/market-range/forex/

So, overall bearish sentiment prevails, which will not overly upset the Bank of England given the comment from the MPC from Wednesday’s meeting minutes that “the real exchange rate may be too high to rebalance the economy”  allied to comments from BoE’s Governor Mervyn King Tuesday that the BOE “are ready to provide more QE stimulus” adding that he acknowledges it won’t be (and it does not have) the cure to the economies current ills, do nothing to offer support to a currency already under pressure.

But, we know how these things work; by the time the last few people jump on the bandwagon and realise there are not a whole bunch of reasons out there to justify buying GBP, they find they are a little late to the party and we get a nasty little relief rally that squeezes the latecomers and weak shorts out. Witness Wednesday morning’s price action, where despite the best attempts of some, we failed to break down through 1.5800 support (thus keeping stop losses around 1.5780 intact) and some buying out of the Middle East saw a relief rally take a few intraday stops out above 1.5875/80 before it ran out of steam.

All in all, things look pretty bleak in the short term for “The Queens Currency” and all eyes are now focusing on Friday’s UK Q4 GDP but with everything seeming to point to a lower GBP what price a small short term correction? True, the longer we remain below 1.5900/30 on a close, the downside is favourite and a break of 1.5800 sees key support at 1.5750 in the firing line and possibly 1.5640 below that. BUT, that said, the sheer weight of negative sentiment and positioning, for my mind, leaves the market vunerable to a short term correction to 1.6050 possibly 1.6100 resistance levels before eager sellers cap.

Eyes down for GDP on Friday; Best of British, as they say!

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