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Downside Targets for British Pound Against Euro, Dollar

Credit Suisse negative on the Pound

  • Pound to Euro Rate Today (13-1-16): 1.1410, could go as low as 1.0635
  • Pound to Dollar Rate Today: 1.2171, 1.09 forecast under hard-Brexit scenario

Technical strategists at Credit Suisse have written to clients confirming they retain a negative stance on the British Pound outlook.

Technical strategists are tasked with looking at previous price action on financial charts to interpret underlying market strutcture.

Credit Suisse maintain their view the bounce in the GBP TWI (BoE) has been a correction, and they therefore expect further weakness to emerge.

The GBP TWI (Trade Weighted Index) is a basket of British Pound-based pairs that give us an overall indicator of the currency's strength. 

Gains have been capped below downtrend resistance at 77.44.

"We view the recent bounce as corrective and look for a retest of the 73.43/23 lows of 2008 and 2016. Whilst these should be allowed to hold again, a break can see weakness extend to 69.00," says David Sneddon, Managing Director of Global Strategy Technical Analysis at Credit Suisse.

Pound Sterling Trade Weighted

This tells us that overall Pound Sterling is prone to further weakness against most major currencies.

Further analysis from the Swiss banking group suggests 5yr5yr UK Swap Breakevens are threatening a fresh move higher, which too should reinforce their bearish GBP view.

This view manifests itself neatly in the Pound-Dollar exchange rate.

“GBPUSD below 1.2083 should confirm a fresh top, for a move back to test the 1.1491 spike low,” says Sneddon.

Credit Suisse see top in GBP-USD

This targeting of the spike low is also advocated by strategists at Citi, however as we note here, pinpointing the spike low is rather difficult.

And, under a hard-Brexit scenario, analysts say would see risk for 1.0910, potentially the 1.0463 low of 1985.

We reported back in October that Credit Suisse saw a further 5-6% decline in Sterling based on how hard the 'Brexit Dial' swung.

Recall that in October Pound Sterling was near historic lows which roughly equate to where we find ourselves in January 2017.

Above 1.2433 is needed to mark a base.

“Trade Idea? Sell GBPUSD at 1.2250/1.2350, stop above 1.2450. Take profit at 1.1600,” says Sneddon.

The call comes a day after we reported analysts at Goldman Sachs say the Pound is due another bout of weakness that could see GBP/USD fall as low as 1.14.

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The Pound vs Euro Outlook

The EURGBP meanwhile looks to be establishing a fresh base after holding a cluster of key supports.

"The setback in EUR/GBP has held a cluster of price, moving average and retracement supports at .8304/.8252, and a fresh base looks to be in place above .8671. We look for strength to extend back to .8854, then the 61.8% retracement of the 2015/2016 sell-off at .8983. Beyond .9050 is needed to open the door to a fresh look at .9403/14," says Sneddon.

Credit Suisse technicals

For those looking at a GBP into EUR conversion, resistance is at 1.20/1.2118 while a fresh high is established at 1.1532. Credit Suisse look for fresh weakness to extend back to 1.1294, then the 61.8% retracement of the 2015/2016 rally at 1.1132.

A break of 1.1050 is needed to open the door to a fresh look at 1.0635/22.

Elsewhere, Credit Suisse stay bullish on the FTSE 100 for 7355, but look for a top there.

The FTSE 250 is meanwhile  expected to underperform the FTSE 100.

 

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