The recent euphoria for the British pound driven by hawkish commentary and statements from BOE governor Carney has all but dissipated, and like the proverbial souffle, has virtually collapsed, with the pair now taking on a very bearish tone, and reflected on the currency strength indicator to the left on the daily timeframe. Here we can see the resurgent US dollar rising strongly ( the red line) with still some way to go before it reaches a potentially overbought condition in this timeframe. Equally the British pound, the yellow line, is moving strongly in the opposite direction and responsible for deliveing the strong trend with momentum we have seen since late September.
For the British pound itself there are many varied forces now in play. First we have Brexit which has risen to the top of agenda once again, with a pre divorce agreement now in doubt. Then comes the Prime Minister herself, who is increasingly under pressure to resign and with threats of a coup constantly in the wind, and not helped by a war of words with her Foreign Secretary who if demoted, may duly challenge her for the leadership of the party. And if this were not enough, overnight the ONS has confirmed it made an error in reporting recent inflation data of the UK, which was under reported, and so signalling the BOE may act sooner rather than later on interest rates. The last of these has helped to give the beleaguered pound a lift in early trading, but given we have holidays in the US, Canada and Japan, any bounce today may be muted. Technical support now awaits in the 1.3000 region which may provide a temporary pause with the potential to retest the low of August in the 1.2780 area longer term should the US dollar continue to maintain its bullish momentum.
By Anna Coulling
Charts from NinjaTrader