GBP/USD: Poor pound price action increases downside risks in near-term – MUFG

Analysts at MUFG Bank, see the pound under pressure in the near term and expect GBP/USD to drop further after breaking the 1.2420 support. 

Key Quotes:

“We are recommending a short GBP/USD trade idea after the GBP continued to perform poorly over the past week. The GBP has broken below key support levels against the EUR and USD in the near-term with EUR/GBP rising above the 0.9000-level and cable falling below the 55-day moving average at 1.2420. It has increased the risk that GBP weakness will accelerate in the near-term.”

“The GBP has failed to derive any relief from the improvement in the Brexit negotiation mood music and from the reduced likelihood of the BoE implementing negative rates anytime soon if at all. The market clearly wants to continue to sell the GBP at this point in time even as fundamental downside risks have eased.”

“Speculative short GBP positions have been building in recent weeks. We favour short GBP exposure against the USD as we continue to see scope for the USD to rebound further against European currencies from heavily oversold levels.”