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Mar 25 - 11:55 AM

GBP/USD - COMMENT-Sterling's Drift Lower May Hasten As Long EUR Position Normalizes

By Paul Spirgel  —  Mar 25 - 10:11 AM

GBP/USD bounced higher after hitting 7-week lows at 1.3671 earlier on Thursday but faces strengthening headwinds ranging from COVID and Brexit to a deteriorating chart outlook.

The early-year sterling enthusiasm based on receding Brexit uncertainty and the UK's rapid vaccine deployment has been replaced by frictions with Brussels and supply hitches for inoculations, making it difficult to expect a run at recent GBP/USD highs above 1.4200.

Technically, cable's dip below its 10-WMA at 1.3827 and its drop into the daily cloud, which ranges from 1.3794-1.3561, indicate a negative shift in underlying sentiment.

Recent probes below 1.3688, the 50% Fibo of 1.3135-1.4240's December-February range hint at further weakness.

A saving grace for sterling bulls is that Europe's recovery prospects appear worse than the UK's, which pushed EUR/GBP to 13-month lows by 0.8534 this month.

This year's unwinding of dollar shorts against G10 currencies, from $36bn to $14bn, has been heavily influenced by euro specs reducing their early 2021 long by more than 50%, from 212k to 90k contracts.

Should broad EUR selling abate, GBP/USD when viewed on its own merits, is likely to fall further, with the daily cloud base at 1.3561 and 200-DMA by 1.3254 likely targets.
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Source:
Refinitiv IFR Research/Market Commentary

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