GBP/USD gapped lower at the start of the new week and briefly fell below the 1.20 handle on reports over the weekend that PM May is expected to announce an end to Britain’s participation in the single market.
The Times reported Prime Minister May will take the opportunity to emphasise leaving the single market to regain control of immigration policy during Tuesday’s speech.
She has signalled some key points including taking control of immigration and leaving the Jurisdiction of the European Court of Justice which is seen as a sign of willingness to exit the single market.
“We continue to look for GBP downside as much uncertainty remains over the timing of trigger of Article-50, exit plan/ strategies the incumbent government has (how the negotiations with EU will pan out) and the medium term repercussion of these on UK’s outlook and prospects (in terms of growth, trade relationships, London’s status as financial hub, investment/portfolio flows and job creation),” says Saktiandi Supaat at Maybank in Singapore.
Maybank’s call for GBP to break past 1.20 in 1H materialised this morning, though they think more downside could come).
“Daily momentum and stochastics continue to indicate a mild bearish bias. Next support at 1.20 before 1.18,” says Supaat.
Analyst Karen Jones at Commerzbank tells clients a close below 1.2085/38 would mean a continuation of the descent and should trigger losses to 1.1775 and then 1.1481 the recent spike low.
“We have a large time zone gap back to 1.2130 and this may be filled ahead of further declines,” says Jones.
Above 1.2311 resistance is found at the 55 day ma at 1.2410 - above here we are likely to see a challenge of the 1.2474 resistance line.
“While capped here, a negative bias will remain entrenched, this resistance is reinforced by the 100 day ma at 1.2581,” says Jones.
Analyst David Sneddon at Credit Suisse reflects that GBPUSD's gap lower saw a test and hold of 1.1982 – the 61.8% retracement of the October/December rally.
"Although further consolidation should be allowed for here, we stay bearish and look for a break in due course for a move to 1.1855, then the target from the top at 1.1587, and more likely the 1.1491 spike low," says Sneddon.
Whilst a fresh rebound from this latter level should be allowed for, Credit Suisse look for a break in due course for a move to 1.1305/1.1260.