The negative sentiment keeps building towards the GBP

Posted Thursday, August 11, 2016 by
Skerdian Meta • 2 min read

The Brexit referendum took place about six weeks ago as we know. The GBP took a 20 cents dive in the next day as the forex market was in shock. But, after the initial dip to 1.28, the price in GBP/USD stabilized in the following weeks, with this forex pair forming a trading range between 1.3050 and 1.34-35.

To me, that´s not the end of the Brexit effect on the forex market and on the Pound and I don´t think this is stabilization either. In my honest opinion, it still looks like the forex market is in shock. The Brexit shock is not over yet. It´s only that in the day after the referendum the market knew exactly what to do as it kept sending the GBP lower, while now it doesn´t know what to do. The forex market hasn´t digested the post Brexit scenario yet, so it remains nervous and doesn´t know what direction to take.

A downtrend is starting to take shape in GBP/USD

But I can feel that the market is biased to the downside. As you can see on the forex chart above, if you leave out the quick dip to 1.28 after the Brexit vote, the highs have been getting lower as well as the lows. If you can read the price action, which is a very important thing in forex, you know that this means we are heading down. The economic data has shown a deterioration of the UK economy and the BOE (Bank of England) has started the dovish train.

The UK government is yet to join, but all the pieces of the puzzle show that the forex market sentiment towards the GBP is deteriorating. Soon we will see the downtrend resume in the GBP pairs. It takes a while for these sort of moves to start, but when they do the price enters a one way street. They last for months if not years and it is very difficult to  change the flow afterward. We hope for a bounce though in order to open a long term forex signal in GBP/USD. 1.33 would be the ideal level to open a sell forex trade. 

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