GBP/USD: headed to 1.2000 by end of year?

GBP/USD is consolidated at yearly lows in a bearish environment, pricing in a rate cut by the BoE later this week.

Markets are short of sterling following the Brexit vote and uncertainties to lay ahead with a parliament in turmoil and potential negative impacts from withdrawing from the EU to the UK economy in the near term. The US dollar is a little stronger on the surprise nonfarm payrolls headline last week, but the 1.2900 level is proving a touch level to break below with conviction. 

"As the implications of the UK’s Brexit vote begin to sink in, we see protracted downside risks for sterling. We expect GBP/USD to trade down to 1.20 by the end of this year. The risks to our forecast are currently skewed to a further—and faster—decline, explained analysts at TD Securities.

"Investors should use the latest bounce in cable off the lows around 1.28 to initiate—or add to—short positions. We expect cable’s next leg lower to carry spot toward our end-Q3 target of 1.25 before another period of consolidation is seen."

GBP/USD levels

GBP/USD has made a recovery from 1.2750 and the 78.6% retracement of the move from 1985 to 2007. On a break lower, that level is regarded as the last defense for the 1.0463 1985 low, according to analysts at Commerzbank.

"Rallies are indicated to terminate circa 1.3065/1.3235. Initial resistance is found 1.3025, 1.3124 (27th June low) and then 1.3534 29th June high and the market will stay directly offered below here."