Key Points:
- Flash crash sends Cable Reeling to 1.1991 low.
- Further bearishness likely in the week ahead.
- Watch for any further Brexit announcements or discussion.
The Cable had a tumultuous time last week as the GBP/USD pair literally fell off a cliff, setting off a chain of selling as talk of a `Hard Brexit’ ramped up late in the week. A flash crash occurred late in Friday’s session which saw the pair decline to a low of 1.1992 before managing to close around the 1.2421 mark. Subsequently, given the current vulnerability of the Cable, it makes sense to take a look at last week’s machinations and what is potentially looming on the horizon for the pair.
Last week was tumultuous for the embattled Cable as late Friday saw the pair in free-fall following ongoing discussions about whether the UK Government will take the `Hard Brexit’ option. Subsequently, a flash crash occurred which took the currency all the way to a low of 1.1992 before it managed to reverse some of the losses to close the session around the 1.2421 mark. Subsequently, the Bank of England has requested the BIS to investigate the circumstances around the raft of electronic selling given the violence of the move. Regardless, the vulnerability of the Cable is currently exposed and the week ahead is likely to be critical for the pair.
Looking ahead, markets are largely braced for further Cable declines given the scale of last week’s crash. Subsequently, much of the focus will be upon any further developments on the Brexit with both the UK and EU governments continuing to talk tough over negotiations and financial and immigration controls. Therefore, monitor the Brexit related news closely as it is likely to be the prime driver of the pair’s volatility in the coming week. In addition, a bevy of US economic data is due out with the major events being the Retail Sales and PPI figures which are forecast at 0.6% and 0.2% respectively.
From a technical perspective, the pair remains under pressure heading into the week’s opening sessions. Given the collapse late last week, both the daily and weekly RSI Oscillator readings are strongly oversold, however, the pair has exhibited no signs of bottoming just yet. Subsequently, we are likely to see some additional selling in the week ahead but keep a wary eye on any bounces. Support is currently in place for the pair at 1.1991. Resistance exists on the upside at 1.2472, 1.2768, and 1.3120.
Ultimately, the next few days are likely to be fairly critical for the pair as the markets come to grips with additional volatility around any Brexit discussions. Although the pair is under pressure and vulnerable currently, expect to see a gradual slide rather than any additional `flash crashes’ in the week ahead as an equilibrium is re-established.