GBP/USD: Identifying The Bottom Is Risky Business
Carl Paraskevas | Jul 06, 2022 02:12PM ET
GBP/USD is closer to 2016 flash crash levels than ever before. At the time of writing, the pair was down by -1.61% this week to trade at 1.1895. That’s not too far from its weekly low of 1.1876. Circumstances today, however, are very different than they were during the flash crash.
GBP/USD’s fall from its May 21, 2021 high of 1.4250 has been anything but accidental. The political chaos in Westminster this week is just the latest act in what has been a drawn-out tragedy for the UK economy in 2022. Fears of global recession haven’t helped the British pound either.
Economic contraction and record-high inflation are two factors the Bank of England will need to contend with at its next meeting on Aug 4. A weaker pound is unlikely to help either in the near term. But even if the Bank of England does raise interest rates at a faster pace of 50 bps, how does it compete with the Fed, which is hellbent on tightening interest aggressively even at the cost of higher unemployment? Traders should ask these questions as they size up GBP/USD.
Knowing the current context behind the GBP/USD’s latest fall, I do question whether it is sensible for big buyers to swoop in and buy up the British pound at levels south from here. The latest CFTC net speculative positions for GBP/USD show the market moving less bearish than before, but given that positioning didn’t look massively stretched prior, that may add the capacity for more shorts before the situation looks out of hand.
GBP/USD could very well rise in the coming days. Still, I am personally holding out from buying until there are decent signs of either a potential reversal or even a retracement before committing any capital. Even better if that price action is catalyzed by a big shift in the narrative around GBP/USD. Until then, I am trading this pair cautiously and without much conviction.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.