GBP/USD: will be there a new drop or not?
On October 2nd Theresa May put foot at the podium, cleared her throat and sent a bunch of shockwaves through markets. The government will invoke Article 50 in March 2017! It resulted in the British pound breaking down rather significantly during the past trading sessions and now heading to the 1.25 level opening the door to even more selling opportunities.
A lot of this was due to the fact that the Article 50 is becoming more and more of a reality; and there won’t be a plain sailing. We will be faced up with a really grievous farewell from the UK. Although I don’t understand traders’ reaction to this news. It seems that a lot of them were a bit blindsided, frantically busy with their financial operations, and didn’t notice that the ball has already started to roll many days ago. Well, although the pound has already suffered significantly, many analysts expect that with new traders awakening from their sleep, the GBP will be falling further. Many stakeholders confirm this assumption by opening new shorts.
Credit Suisse hurried to revise its target to 1.22 from previous 1.34. BNP Paribas is in line with its peer. It expects the pound to fall further as the government prepares its negotiation strategy ahead of March. The GBP/USD is now below the 1.28 level, and while the perspective of trading GBP from the long is quite attractive as the pair reaches the 1.25 level, BNPP officials prefer not to take any rash measures and keep watching the pound sliding to its historical lows.
Goldman Sachs is also having a rather bearish sentiment towards the pound. The Bank of England made it clear that it is ready to deliver a monetary stimulus for the UK economy. In addition, it left the door open for further easing. As we see the recent data coming from UK keep the BoE away from its promises, but it doesn’t mean that the upcoming data will be as good as it is. Therefore, Goldman Sachs’s forecasts for the British pound are extremely bearish. It set its current 3-month forecast at 1.20.
However, not everyone agrees with these gloomy predictions for the pound. Aurelija Augulyte, currency analyst with Nordea Markets believes the GBP is already extremely undervalued. She thinks that some global events in the upcoming months will accord support for the pound. Moreover, she sees GBP/USD rising at the end of this year reaching the 1.32 level.
So, it is for you to decide, in which direction GBP will go further. I think that there is a rationale to sell short-term rallies if you are so inclined to scalp the market, but at this point in time I have no interest in risking any money and I would rather wait for the new steady trend to show up. Because, let’s face it, the 1.25 level is rather low for this currency pair.