GBP/USD: Rallies could be seen as opportunities to enter shorts – TD Securities

According to analysts from TD Securities with the end-June deadline fast approaching, the pound could be in for a rough period ahead. They see little evidence these concerns are in the price at this stage and they consider GBP/USD rallies could be an opportunity to sell the pair.

Key Quotes: 

“We think conditions are looking increasingly ripe for a weaker pound in the weeks ahead. In line with our expectation for a stronger USD overall, we are already short cable in our model portfolio with an initial target of 1.1850. With spot spending the last few weeks consolidating in a broad 1.2250-1.2650 range, we think any remaining rallies should be seen as opportunities to enter shorts — or add to existing ones — particularly as positioning does not appear to be a major concern. Within this, we think the 1.2465/85 zone could be an attractor on a limited move higher. At this stage we would probably need to see a move back above 1.2740 to become sidelined from our bearish view. This would suggest the pair had reverted to the trading range in play from last October through to early March.”

“Our bearish sterling view is particularly concentrated over the next few months. Indeed, we think GBP is likely to have a better second half of 2020 once more visibility emerges on the UK/EU relationship and global growth prospects begin to stabilize. In keeping with our view for a softer USD over this period as well, we maintain our current forecast for GBPUSD to finish this year around 1.26.”

“We are inclined to think that sterling may not suffer quite as badly as it has in previous flareups if Brexit risks do resurface as we expect. So much damage has already been done as a result of the virus, that we think the ultimate effect on GBP is more from the added uncertainty than expectations of a further marco drag. At this sage, a harsh No-Deal outcome will undoubtedly slow the UK's recovery even further. It will not, however, prevent the great harm that is already underway.”