GBP/USD broader fundamental picture continues to argue for further downside - Scotiabank

Overwhelmingly bearish sentiment and record short CFTC positioning leave GBP vulnerable to short-lived periods of strength, however the broader fundamental picture continues to argue for further downside, said Eric Theoret, Strategist at Scotiabank.

Key Quotes

“GBP is up 0.3%, strengthening to a fresh multi-week high around 1.32 at levels last seen in early August. GBP gains roughly coincided with the release of stronger flash PMI’s out of France, with no discernible reaction to domestic CBI figures.”

“Overwhelmingly bearish sentiment and record short CFTC positioning leave GBP vulnerable to short-lived periods of strength, however the broader fundamental picture continues to argue for further downside. Yield spreads add to pressure on GBP as we note the continued widening in the UK-US yield spread, extending beyond –60bpts to multi-decade lows.”

“GBPUSD short-term technicals: bearish—GBP appears to be forming an ascending wedge (see bottom chart), the formation typically resolved via reversal. We look to limited upside above 1.32 and anticipate an accelerated decline on a break below the lower bound of the wedge just above 1.31.”