I am turning very bearish for GBP…. for some of it, I have for what it looks like, some macro reasons… for the other part, it is just an increasing gut feel that we might soon see the END of the honeymoon for post Brexit Britain.
The vaccination bonus has already started to be priced out somewhat BUT it might as well just be more about the USD strength we have seen so far as if we look at GBP in the crosses, NOT much has happened yet.
The first attempt of the 1.3565 fibo support has failed, we know from experience that the 23.6% is a very important fibo level…. up to that point, one can call the dip just a correction from the high… a break of the 1.3565 level would mean possible trend change.. so we are NOT there yet… but the rally back to the double top around 1.3910 starts to offer a good risk reward trade to start selling GBP. I do NOT expect CBL to trade back above 1.4000 this year (might eat humble pie later, given the USD itself is a bit wobbly right now).
Some of the fundamental reasons and I do not even want to become too scientific about it but keep it on a more common sense level…. the UK had to deal with 2 Century events…. Brexit first and just as that started, we got Covid. Covid alone would have been tough enough to deal with BUT BREXIT on top of it?
The Government either by choice or by ignorance has so far blamed most short comings on Covid (empty food shelves in supermarkets as the most prominent one)… BUT forgot to mention that we also lost 100’000 lorry drivers due to Brexit, Eastern Europeans that went back home…
I also see, when i do some online shopping with smaller UK companies, a big RED line that warns European customers that they are NOT able to supply any goods to Europe due to Red Tape….
As I said, i want to keep it simple and just throw a few things out there… what that means is… I feel the recovery in the UK will get stuck very soon and I feel the UK could be one of maybe many countries that face a double dip recession… the market started to look at the BOE and some banks call August 2022 as the first hike… NAHHH not going to happen…. for the BOE it makes sense to adopt a Jerome Powell style patience… the BOE will NOT know for some time the true effect of the double whammy of Covid and Brexit and should sit on the side of caution.
I feel GBP got too expensive now , of course not in historic terms, I am well aware that it is still relatively low vs 2014 or even pre 2008 GFC…. BUT that is NOT an argument as such right now.. as we deal with a NEW economy, with new issues and the past may well be the past for now.
I feel that GBP will make its way towards 1.3565 and break that area eventually and my first target from here is 1.3150, that is only about a 5% ish move , so no crazy call at all… whether we do extend to 1.2800 will very much depend on what the FED will do into later 2021 and early 2022… and to see if the USD element of this trade helps to push CBL even lower.
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