The British pound currency has fallen to a fresh yearly low against the US dollar as UK political uncertainty and an explosive early-week move in the US dollar index caused sterling to crack the 1.1900 level.
Traders are now looking towards the Brexit low in 2016, located close to the 1.1400 level as the next bearish target if the US dollar index heads towards the 110.00 resistance level.
Rabobank have put out an investment know about the pound suffering during this time due to a number of issues. The bank notes that “Although pound investors will be hoping for a government less distracted by scandal and more focussed on providing coherence around the post Brexit economy, the jury is still out”.
The note also said, “The pound may suffer a lack of fresh direction until the new prime minister is in place.” I tend to agree, and I think we could see a new range between the 1.1600 and 1.2000 levels this summer.
This week will see the UK’s latest monthly GDP figures released and these are expected to show no growth in May, reinforcing fears that second quarter data will show an economic contraction.
The UK economy contracted by 0.3% in April, according to official figures, following a small decline in March. The latest figures also showed that inflation reached a 40-year high of 9.1% in May, up from 9% in April.
Looking at sentiment data and how traders feel about sterling, the ActivTrader Market Sentiment tool shows that traders are growing more bullish, despite the drop towards 1.1900 in sterling.
With 71% of traders are currently bullish, and it should be noted that this current sentiment reading is significant enough to be an extreme reading, as traders are now 3 to 1 long GBPUSD.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame, technical analysis clearly shows that that GBPUSD pair has ignited a large head and shoulders pattern during the recent drop towards the 1.1900 support zone.
Now the head and shoulders pattern has been activated the target is the next problem for bears. The head and shoulders pattern is indicating a drop towards the 1.1650 level is possible.
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GBPUSD Medium-term Technical Analysis
According to the daily time frame, the GBPUSD pair has broken under the bottom of the last remaining Fibonacci support, which now exposes a run at the 2016 Brexit low.
The daily time frame also shows that the price has broken reached the 0.786 Fibonacci. Now a coming move under the 2020 low would surely cause a test of the 1.0500 level.
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