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GBP feeling comfortable in the dirt

Posted Friday, August 12, 2016 by
Skerdian Meta • 2 min read

As we mentioned yesterday in a couple of our live market updates, the forex market sentiment is turning really bearish towards the GBP. After the initial 20 cent drop following the Brexit vote, the forex market has been unclear whether to go long or short on the GBP. Forex traders weren´t sure of the effect that Brexit would have on the British economy. Besides that, they were unclear what measures would the BOE (Bank of England) or the UK government take to fight the recession, if it threatened the British economy.

Now the whole picture is clearer and the forex market is picking sides. From the economic data indicators, we have seen till now which were confirmed by Reuters polls, the UK economy is feeling the first symptoms of Brexit. The economy is heading towards recession and even the best performing sectors such as construction and services are already in contraction. 

Most sectors of the economy are in contraction and heading for recession, the BOE has taken additional steps to increase the monetary stimulus package and the UK government is expected to do the same in autumn with the fiscal policy. Free money everywhere. That means that the value of the GBP will normally decline, because that´s what happens when there is an oversupply of a particular good in the free market. In this case, it´s the GBP. 

The downtrend keeps extending further

The forex market has been collecting all the pieces of the puzzle and the image that comes out of it is not pretty. All the data pieces show that the UK economy and the GBP are heading towards a dark alley and the market sentiment is quickly turning sour for the GBP. A week ago or so, GBP/USD couldn´t stay below 1.30, now it can´t stay above 1.30. In fact, it´s getting pretty comfortable at these levels and today it didn´t even touch this support-turned-resistance level. We were hoping to see 1.33 again to open a long term sell forex signal but it seems so far right now. 

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