GBP/USD Forecast: Another Leg Lower Still to Come say Goldman Sachs
GBP/USD could consolidate further but the final leg lower of the longer-term sell-off is yet to come warn Goldman Sachs.
GBP/USD reains under pressure having fallen for six consecutive days now.
The UK currency is left looking deeply oversold and is due some counter-trend corrective price action according to technical analysts at Goldman Sachs who have updated clients with their latest projections.
We thought the mid-week bounce would be the start of that correction but we might have to wait a little longer.
GBP/USD is noted by Goldman Sachs to be in the third and final ‘c’ wave of a large multi-year correction, which once completed, will lead to a new impulse wave higher.
The final c-wave of the correction began at the June 2014 high (see chart below) and has completed three waves down, but is expected to complete five in total:
We are now probably entering the fourth wave, according to Goldman’s after three ended with the flash crash low.
According to Elliot Wave theory, the fourth wave is corrective and usually corrects back to the region of the fourth wave of one smaller degree.
The red line on the chart below shows the expected trajectory of the fourth wave and the probable move back up to the early 1.30s.
After it is complete it will probably lead to a resumption of the downtrend and the start of the fifth and final wave lower of the larger C wave, which itself will be the final down-wave of the bigger correction since 2007.
Goldmans note:
“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/ 4th wave.
“A 4th 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.”
Latest Pound / US Dollar Exchange Rates
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| 1.287 - 1.2924 |
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Fortunes for Sterling Change
Fortunes for Sterling have finally changed and a nascent relief rally appears to be underway.
"The UK currency rebounds on reports that UK PM May will accept the UK parliament to vote on the Government Brexit plans. Markets might see this as easing the risks for a hard Brexit. However, it is still early days to draw firm conclusions," says Piet Lammens at KBC Markets in Brussels.
A squeeze on a market that was aggressively positioned Sterling-short probably also played a role.
The focus is expected to remain on the political debate.
"A pause on the recent Sterling sell-off is possible, but we assume that it is much too early to call a bottom for Sterling, especially if global uncertainty/volatility would rise further. We continue to avoid Sterling long exposure as long as the debate on a hard Brexit persists/intensifies," says Lammens.
The Bottom is Not Here Yet
Further research on GBP/USD has landed on our desk, this time from the foreign exchange team at Bank of America Merrill Lynch Global Research.
BofA believe that a two-year timeline for negotiations once A50 has been triggered will keep GBP under pressure and risks further new multi-year lows.
This view is supported by their analysis of previous peak-to-trough moves in GBP/USD through various UK idiosyncratic crises.
On average, GBP/USD has fallen by 30% through those previous episodes.
GBP/USD has already fallen by 14% since the Referendum.
"Should GBP/USD decline at a similar average monthly pace as it has done since July (-1.3%) until end-2017 and in line with previous peak-to-trough declines, GBP/USD could target 1.05," say BofA.
