GBP/USD – No Bottom Yet

GBP/USD – No Bottom Yet

Although sterling hit a 31 year low this past week, the spike low on Wednesday followed by the consolidation Thursday and Friday suggests that there could be a near term bottom in GBP/USD. While technically that may be true, fundamentally, there’s significant downside risk for GBP next week. The Bank of England has a monetary policy announcement and we know how Governor Carney feels about the consequences of Brexit. In the 2 weeks since Britain voted to leave the European Union, he’s spoken at least 3 and he hasn’t been shy about sharing his concerns. He’s long felt that Brexit poses a significant risk to the economy and they haven’t missed a beat in providing support to the economy. This week after 3 major property funds halted redemptions, the BoE cut capital requirements of banks for banks freeing up 150 billion pounds to encourage lending. Carney previously said their forecasts will be updated in August to account for Brexit so that’s when we expect the next major round of easing to occur. However he won’t miss the chance to prepare the market for additional stimulus when they meet next week so even though GBP/USD appears to be forming a base, this is far from a bottom.

Technically this past week’s low of 1.2798 will provide near term support but there is no major support until the June 1985 low of 1.2565. Resistance is at 1.3000 but a short squeeze could easily take the pair to 1.31.

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