GBP/USD further weakness toward 1.25 seen - Scotiabank

Eric Theoret, Strategist at Scotiabank noted that they expect GBP/USD to fall further towards 1.25 weighed by Brexit-related concerns and technicals signals.

Key Quotes

“GBP has dropped to a fresh multi-decade low with a technically-driven break through the July low around 1.28, pressured by sentiment and Brexit-related concerns as market participants continue to respond to Sunday’s announcement from PM May in which she communicated an intention to trigger Article 50 by the end of March.” 

“The U.K.-U.S. 2Y yield spread is at historical lows, pushing beyond -70bpts, and measures of implied GBP volatility are inching higher, generating a rise in the premium for protection against GBP weakness. We look to further GBP weakness toward 1.25.”

“GBPUSD short-term technicals: bearish—momentum signals are bearish and the RSI is only just approaching the oversold threshold at 30. DMI’s are providing confirmation and MA’s are bearishly aligned across a range of time horizons. There are no major/ significant technical levels ahead of the February 1985 low at 1.0520.”