GBP/USD continues to grind lower, in a slow but steady fall. The pair is trading at a 5 month low, with sterling showing weakness against many other currencies. Here are 3 reasons for the drop, and a guide to the next technical levels.
GBP USD Next Levels – Click image to enlarge
3 Major Reasons for the fall
- Triple dip recession: The British economy enjoyed an Olympic leap in Q3 – a strong 0.9% growth rate that ended the recession. However, this was indeed a one-time event, as feared. The first release of GDP for Q4 showed that the UK economy is squeezing once again, by 0.3%. The outlook for Q1 doesn’t look better.
- Euro-zone financial stability: the European debt crisis is far from over, but the hope that the worst is behind us (thanks to Draghi’s OMT and promise to preserve the euro) is helping ease tensions: bond yields are falling. On the background of this optimism (and as the markets ignore the euro-zone recession and unemployment), safe haven flows that went into the UK are now going the other way around.
- US recovery: The world’s No. 1 economy continues recovering at a steady rate, and talks about ending the open-ended QE have emerged. While the Fed isn’t likely to act soon, the improving economic indicators, especially in the job market, are helping the dollar, which gains against sterling.
GBP/USD Levels
Cable opened the year with a big false break above 1.63. It was all downhill from there. The loss of the round figure of 1.60 was followed by a loss of the 1.5825 line, which is now resistance. This was a trough in November.
The recent break was of the 1.5750 line which separated range in the summer of 2012. Having broken this level, the next support line is far: 1.56, which was a swing low back in November 2011.
The next round number is also important: 1.55 was a stepping stone for the pair in August. 1.5392 was a swing low in July 2011 and is strong support as well. Even lower, 1.5270 is the last important cushion before 1.50.
Will GBP/USD continue falling, or is it oversold?
Further reading:
- GBP/USD Maintains Bearish Stance after Break Down
- GBP/USD weekly forecast.