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Pound Forecast to Fall below 1.20 vs US Dollar this Week

Pound to fall below 1.20 this week

On Tuesday January 10 the Pound to Dollar exchange rate (GBP/USD) is seen teetering above a key support line, that if broken, opens up significantly lower levels. 

The UK currency was put under renewed pressure on Monday as traders react to Theresa May's suggestions that she is willing to go for a full Brexit rather than trying to maintain the UK’s access to the common market. 

In an interview on Sky News May said controlling immigration was amongst the top priorities in negotiations.

The decline spells for an increasingly negative outlook argues one prominent FX analyst.

Analyst Shaun Osborne at Scotiabank says the recent weakness fits the longer-term prognosis for an extended sell-off in GBP/USD.

"The longer-term technical picture looks very unsteady for the pound. We spot resistance intraday at 1.2175/80 and support at 1.2115. We think a daily close below 1.2175 will tip the balance of risk in favour of a renewed push lower to retest 1.1950/55. We favour selling minor GBP rallies from here," says Osborne.

Others are targetting the exchange rate below here.

"After last week’s resignation of EU ambassador Ivan Rogers and muddled ongoing talks with the EU, the pressure will continue to mount on the Pound. The next support that lies at 1.1841 is within reach and could be reached by the end of the week," warns analyst Arnaud Masset at Swissquote Bank.

However, it must be pointed out that Theresa May has since said she sees the UK remaining a member of the single market; which essentially invalidates the main reason for the recent sell-off.

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GBP Weakness to be Limited from Here

Not everyone is convinced Pound Sterling is about to trigger fresh mult-year lows.

Afer all, we have heard today from Theresa May that she sees the UK operating within the single market - the discounting of which by markets is the main cause for the slump in GBP seen on Monday January 9.

Analyst Fawad Razaqzada at believes the pound should start to get its mojo back in the coming months.

"In the short-term however the technical outlook on the GBP/USD looks rather bearish as it continues to make lower lows and lower highs within its 3.5 month consolidation period. But with the cable now at the lower end of its range, the probability of seeing a bounce rises at an increasing rate by each passing day," says Razaqzada.

The analyst has consulted the GBP/USD's technical charts and notes the exchange rate reached a Fibonacci support area between 1.2125 and 1.2135  - "this area is the meeting point of the 78.6% retracement of its post flash crash bounce with the 127.2% extension of the bounce from Tuesday. At the very least, the cable may stage a short-term bounce here."

But potentially, it could form a significant low at or around here given that this Fibonacci convergence area resides inside a previous support zone between 1.2085 and 1.2150.

It is also worth pointing out that the flash crash in October may have seen the Pound form a significant low.

"Thus, the weakness observed now could merely be a (deep) pullback against that low, providing the so called smart money another opportunity to reload their long positions," says Razaqzada.

GBP to USD at bottom of its range are looking for the cable to put in a low at or around these levels, though if it creates a new low below the flash crash nadir of 1.1950 then that would clearly invalidate their view.

"What the bulls would want to see now is a close back above 1.2200 broken support, which could fuel a bounce to the next key resistance in the 1.2270/2320 range. If the latter then fails to hold the cable down then we could see the onset of a much larger recovery. But at the moment it is far too early to talk about the bullish objectives as we haven’t see a significant reversal pattern yet – though it could be just a matter of time," says Razaqzada.


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