GBP/USD slide a likely precursor to further breakdown
James Chen, CMT June 20, 2017 8:24 PM
Carney’s comments brushing off speculation over a BoE rate hike on the horizon dealt the British pound a rather significant blow. The currency dropped sharply on Tuesday against the US dollar, euro, and Japanese yen. Against the dollar, the pound hit a new two-month low after Carney’s speech, extending the recent breakdown that was initiated less than two weeks ago, when Theresa May made an unexpectedly poor showing in the UK general election.
Carney’s rejection of the rate hike speculation sharpened the contrast between the still-divergent monetary policies of the UK and US. As Carney sounded a very dovish tone on Tuesday, the US dollar continued to be buoyed by the sustained hawkishness of the US Federal Reserve and recent Fed speakers despite signs of declining US inflation. For the past two weeks, the dollar has been in a significant relief rebound at the same time that the pound has been weighed down by election and Brexit concerns.
The resulting GBP/USD slide first broke down (immediately after the UK election outcome) below a key uptrend support line extending back to the mid-March low. After that initial breakdown, the currency pair rebounded but remained pressured under the major 1.2800 resistance level. On Tuesday after Carney’s speech, GBP/USD hit a low right around the key 1.2600 support handle, an original downside target. With any further breakdown below 1.2600, the next major downside target is around the 1.2350 support level.
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