Waiting for Godot is a well-known play by Samuel Beckett where in short, nothing much happens and nothing is certain. This may sound boring but really, it’s anything but boring.
The summer months in markets remind us of this at times. They are historically well-known for being some of the quietest months in the markets and with volumes razor-thin. Indeed, the dollar has traded in such a narrow range this summer that its daily ‘standard deviation’ is now the lowest this year and closing in on historic lows.
However, one move that has caught our eye is that of sterling which is the weakest major this quarter and has recently hit levels against both the US dollar and euro last seen in August / October 2017. We’ve printed six consecutive down days since the BOE hike last week. Interestingly too, its three month implied volatility is currently the highest since late February.
Why so? Many in the market are citing Liam Fox stating that the odds of a breakdown in Brexit talks stands at 60%. Even if this is posturing and the UK Government’s tactics are to talk up the chances of this happening, does this warrant yesterday’s move lower through 1.29 in cable? Some are also citing seasonal factors with the average move in GBP/USD being near -1% over the last nine Augusts.
Of course hard Brexit jitters have always been ever present in sterling to be reignited at any stage. Indeed, only today there are rumours that PM May is stepping up ‘hard Brexit’ preparations and a Cabinet meeting is set for September to progress this position.
Whatever, we are here to see where cable goes from here after this strong selling pressure. Intraday signals suggest a minor low may have been reached but any gains for GBP remain limited when seen in the context of the long-term well-defined downtrend in the pair since making highs in April.
With trend signals bearish on numerous timeframes, any moves higher should be capped by the previous swing low around 1.2958. This means we could fall further to 1.27-1.28 into September with this strong bearish momentum to the fore. As we know, summer markets may sound boring but they can be anything but…
This research is for informational purposes and should not be construed as personal advice. Trading any financial market involves risk. Trading on leverage involves risk of losses greater than deposits.