Sterling is in a free-fall and the deprecation of the currency seemed not to be able to find solid ground. While selling the pound has become the most attractive trade, there is still a long way to go before the outcome of the U.K. referendum. We have tried to take advantage of the bearish momentum by selling GBP slightly below 1.41, but stop-loss rules thwarted yesterday's performance, which is why we ended the day with losses instead of profits.
The British pound dropped below the psychologically important 1.40-level but found a slight support at 1.3960. Amidst uncertainty over Britain's membership of the EU, speculation the Bank of England could possibly be inclined to cut interest rates rather than adopt higher rates have helped push the pound even lower. Given the prospects for a weaker currency to boost inflation, traders should not only focus on the depreciation of the pound but also on the big picture.
BoE policy maker Gertjan Vlieghe said if the outlook worsens, he would consider voting to cut interest rates. BoE Governor Mark Carney said policy makers "have considerable room" to loosen monetary policy should the economy weaken. Despite the recent uncertainty, the BoE was not following other central banks in adopting negative interest rates, Carney said. The next move will still be a tightening.
Nonetheless, sterling trades on speculation whereby the "stay" campaign on the upcoming June referendum is currently going to win against the "leave" campaign according to the polls. However, we are looking for further losses in the GBP/USD targeting lower levels at 1.39 and 1.3850. Pullbacks could be limited until 1.4080.
The EUR/USD traded slightly lower but the downward movement was limited until 1.0990. We will wait for a break below 1.0990 in order to sell euros toward 1.0920. Meanwhile, a small hurdle could be at 1.0970. On the upside, we see a current resistance around the 1.1070-level, which is why bullish momentum could only be increased with a break above 1.1075.
Economic data for today:
9:30 UK Loans for House Purchase
13:00 USA Fed's Lacker speaks
14:45 USA Services PMI
15:00 USA New Home Sales
15:30 USA Crude Oil Inventories
(Time zone GMT)
Here are our daily signal alerts:
EUR/USD
Long at 1.1070 SL 25 TP 20, 40
Short at 1.0990 SL 25 TP 40
GBP/USD
Long at 1.4037 SL 25 TP 20, 40
Short at 1.3960 SL 25 TP 50
We wish you good trades and many pips!
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