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Pound dropped to lowest level since October flash crash
Pound dropped to lowest level since October flash crash

The Pound dropped to lowest level since the October flash crash in 2016. The Pound has slid to $1.2039 against USD prior to yesterday’s Trump’s Conference. 

12 January, AtoZForex GBPUSD has recovered to 1.2250 after hitting a 31-year low in the past 24 hours. The Pound has plunged initially on the firming US dollar, where the latter was driven by traders’ expectations of the first post-election Donald Trump news conference.

Pound dropped to lowest level since 7th October 2016

The Sterling has dipped to a new 31-year low versus the US dollar. Donald Trump has held his first official media conference since winning the US elections earlier last year. The market participants were hungry for the details on his promised policies.

During his campaign, Mr. Trump has stated he intends to cut the corporate and personal taxes across the US. Moreover, his agenda includes the increase in the government spending and the revision of the key trade agreements. One of such agreements is the North American Free Trade Agreement (NAFTA). The agreement is signed between the US, Canada, and Mexico. Where Mr. Trump also promised to build a wall on the border between the US and Mexico, Mexican Peso plunged to historic lows.

Jane Foley, the Head of the currency strategy at Rabobank, believes that the US dollar is appreciating, as the “market is hoping for a bit more meat on the bones” in regards to Mr. Trump’s policies.

What is next for GBPUSD?

The Pound has slid to as low as $1.2039 against the greenback prior to yesterday’s Donald Trump’s News Conference. Afterward, GBP has rebounded to above $1.21 by the closing time of the London market. Such extreme shifts in the Sterling came as the more than three-decade low for the currency. This excludes the Pound flash crash of October 2016, when GBP dipped more than 6 percent to $1.18.

Edmundas Povilavicius, the Senior financial analyst at AtoXForex, has shared his view on the currency pair:

Looking at GBPUSD from a technical analysis perspective, the pair remains biased towards the downside. However, weekly and daily Stochastic oscillator warn of a temporary bullish correction. The leveled to be eyed as a possible resistance capping the up-move is 1.2300 – a combination of daily moving average and Fibonacci 123.6% retracement level.

Above the level, the next resistances are above the 1.2300 level area. Nevertheless, any sustained bullish rally should be expected only after formation of a bottom from 1.1950 Fibonacci 138.2% retracement level.

Therefore, risk/reward favors selling GBPUSD on rallies.

Pound dropped to lowest level

GBPUSD Technical Analysis (Click to zoom in)

Trump-USD relation

The strategist at JP Morgan Asset Management, Benjamin Mandel, has stated:

“Trumponomics is likely to prop up growth and reduce recession risk. This will act as a near-term positive for the US economy.”

Moreover, Lloyds Bank Commercial banking analysts stated that the Pound reached the lowest levels against the dollar since the 7th October 2016. They see the dollar being affected by Donald Trump’s inauguration speech on the 20th of January. Lisa Lignos, the senior currency strategist at RBC Capital Markets, has shared her views on the short –term dollar prospects. She stated:

“There was no single fundamental driver to rationalize the USD move; the Trump press conference disappointed those hoping for signals on fiscal easing or tax reform.”

She further mentioned that the pace of the move in Forex points to positioning still long USD. Ms. Lognos stated that this is despite the weakness of dollar in the past week.

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