The pound continues to sell-off against its major peers. It has fallen back below the key 1.3000 level versus the buck and has met its target at 1.1600 against the euro.
The pound to dollar pair has pierced back below the 1.3000 mark as confidence in sterling continues to diminish.
Currently it is sitting at 1.2953, looking poised to move deeper.
From simply looking at the structure of price action on the chart we can see that the potential for the exchange rate to move lower to the 1.28s and then recover, as it did in July, would not look strange if extrapolated on the future of the chart.
Such a move would describe a type of bottoming pattern called a double bottom, which indicates prices are in the process of basing and reversing trend.
If such a double bottom were to form on GBP/USD in the next few weeks, it would be a bullish sign.
The reversal in trend would require a break above the neckline at circa 1.3400, for confirmation, however, with an upside target thereafter at between 1.37 and 1.38 probably, depending on where the 50-day moving average was at the time.
Forex Broker Hantec’s FX analyst Richard Perry, comments that he too sees more downside for GBP/USD as probable:
“The sterling bulls have again been unable to gain any traction in a recovery and the outlook remains negative for Cable.” He starts his latest update, adding:
“The daily chart shows that any rallies (even if they last more than just a day) should still be seen as a chance to sell and I favour continued pressure back on the $1.2954 low from this week, before testing the July lows of $1.2850 and the 31 year low at $1.2796.”
Commerzbank’s technician Karen Jones is likewise bearish, arguing the pair has probably broken out of a triangle pattern, with a downside target activated at 1.2415.
Lloyds Commercial Banking’s Robin Wilkins foresees the likelihood of more downside on the horizon for the pair whilst it remains below 1.3100/25 resistance.
“While under this resistance the bias is still down. A break of 1.2950/35 should open the low, with little support below there till the 1.25 region. “
Against the euro, meanwhile, the pound has fared even worse, weakening to 1.1590 a whisker’s breadth away from the 1.1588 July lows.
There is a tough monthly pivot at 1.1598 impeding progress lower so the exchange rate may have bottomed temporarily.
Pivots are levels monitored by professional traders as a means of gauging the direction of market - but they also act as levels of support or resistance and it is in this capacity that S1 is currently operating by preventing further downside.
The whole move down from the May highs is also probably an Elliot Wave pattern according to analysis on EUR/GBP conducted by Commerzbank’s Karen Jones.
This large bearish wave, according to Elliot Wave theory is composed of five smaller waves.
Of those five smaller waves four have already completed and the fifth is now probably in progress.
The fifth way will almost certainly retouch the 1.1588 lows and probably surpass them eventually.
A break clearly below the S1 pivot, confirmed by a move below 1.1530, would probably lead to a sell off down to the next target at 1.1400.
The MACD indicator crossing its signal line (circled) in the lower pane is further evidence of more downside to come.