GBP/USD: outlook for October 10-14
British pound was a big newsmaker during the past week. GBP/USD fell by more than 6% to 31-year low of 1.2000 during the Asian session on Friday. The decline took place amid low liquidity and could have been triggered by an error of some large bank’s trader and then exacerbated by algorithmic trades. An article in Financial Times citing French President Francois Hollande, who said that the UK must suffer the consequences of leaving the European Union, may also have had some negative impact on the British currency.
While this pound’s selloff may have been an accident, let’s have a wider look on its prospects.
Data released in the UK during the past week were mixed. On the one hand, all 3 PMIs exceeded expectations. On the other hand, industrial production contracted in August, while manufacturing growth was weaker than expected.
Concerns about Britain’s future have been mounting. Recent comments of Prime Minister Theresa May increased the risks of “hard Brexit” that would restrict access to the EU’s single market so that the government could control immigration. According to the media, Ms. May isn’t planning to negotiate special favors for financial services in EU exit talks. As the financial and related services sector accounts for 12% of GDP, it’s quite easy to see why investors are concerned about the pound.
All in all, the outlook for sterling looks gloomy. GBP/USD breached below multiyear minimums. Although it’s oversold after the rapid decline, bearish risks have increased. Resistance is at 1.2500, 1.2650 and 1.2790. Support is at 1.2000 and 1.1850. Next week British economic calendar is almost empty, so traders will watch comments from British and European officials on Brexit as well as US data.