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Pound-Dollar: Deterioration Tipped to be Limited but Current Key Levels must Hold

- GBP/USD could be in the early stages of basing out

- Key support is seen at 1.3205, a move below here spells trouble for Sterling

The Pound-to-Dollar exchange rate has suffered notable losses over recent weeks and now trades towards the bottom of its 2018 range; but we are told weakness might yet be limited.

The exchange rate is presently quoted at 1.3240 and analysts are currently fixated on the May low located at 1.3205 which is a marker for future price action - a break below here could well herald another impulse lower.

"The UK currency came under pressure last week (following two weeks of gains) and that looks like a fairly direct correlation with the concomitant strength in the Dollar," says Bill McNamara, a market analyst who heads up the Technical Trader service.

GBP to USD technical outlook

McNamara says the 0.95% decline for the week took Sterling straight back to the low end of its recent range and "to a level where it is testing potential support in the form of the six-month low that was posted in May, at 1.3205."

McNamara warns the potential for a break to fresh 2018 lows is possible should support give way.

"Although it rebounded from that low on Friday (after trading down to 1.3209) it’s still not at all clear that the bottom is in and the uncertain political situation in the UK probably isn’t helping. A close below 1.32 would suggest that the pound was heading back towards the next possible support level, at around 1.3050," says McNamara.

However, Trevor Charsley, an analyst with foreign exchange payments specialists AFEX, says there is a good chance Sterling will find support in the current vicinity.

"If prior GBP erosion (to 1.3200 or so last month) has indeed been exhaustive then immediate renewed deterioration should be contained hereabouts again," says McNamara in a note to clients dated Monday, June 18.

And, this could provide hope for those waiting on a stronger Pound:

"On this basis prices are already in the early stages of basing out and a subsequent rally back above 1.3450 will encourage such an interim bullish reading with scope back toward 1.3600/1.3750 thereafter as well," says Charsley.

However Charsley is also wary of just how important current support levels are, saying "an alternate - more directly and decisively negative - scenario cannot yet be ruled out either whereby key 1.3025 support is still vulnerable to attack going forward."

Therefore those with GBP/USD payment commitments should be aware that current levels do represent what appears to be a pretty important level for this exchange rate.

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