Sterling faces choppy waters until new PM selected

Pound Sterling is completely overshadowed by domestic political events. Back in Apr-2018, Sterling was shot down after the Bank of England governor said that a rate rise was not a ‘foregone conclusion’. GPDUSD plunged for the next four months.

In Nov-2018, GBPUSD rebounded from 1.250 after the UK-EU Withdrawal Agreement (WA) was struck. But this recovery rally peaked in March at 1.340 this year when it was clear the WA was politically doomed. More recently, Sterling’s downtrend paused – at around 1.260 – after the PM May resigned. Right now, traders are waiting for a victorious Tory contender to occupy Number 10.

Technically, most Sterling FX rates are oversold. A multi-week slide brought many FX rates close to their intermediate support levels.

GBPUSD, for example, is forming what is known as a ‘Head-and-Shoulders’ base, as depicted by three pivot lows (see below). Lateral support is noted at 1.250.

GBPEUR is trying to find tentative support at 1.120 (see Featured Chart).

GBPJPY is pausing its downtrend at 136.0, while GBPCAD eyes a rebound off the 1.660-1.680 support band.

Given the propensity of Sterling’s peak and trough to coincide with major political events, I would not be surprised if Sterling’s slide reverses somewhat when a new PM is chosen. For the next few weeks, Sterling might just trade sideways in a choppy fashion until Tory members select their new leader.

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