Summary:

• GBPUSD reaches highest level since day after Brexit vote
• 1.38-1.40 has historically been a pivotal swing level for the pair
• JP Morgan remaining bearish on the Pound; see 1.30 by end of Q1

This afternoon’s trade could be a little more subdued than normal as the US celebrate Martin Luther King day and take a bank holiday. The NYSE and NASDAQ are closed for the holiday and whilst the futures will still trade (US500, US100, US30) volumes will likely be lighter than normal. 

Despite the lack of US participants today, there has still been some interesting moves. In particular the USD has dropped significantly with only the Turkish Lira performing worse out of traditional (Non-crypto) currencies. 

 The US dollar is under pressure today and falling against the vast majority of its peers. Source: xStation

In terms of individual pairs the GBPUSD has added to last week’s gains and made more steady moves to the upside in breaking above the 1.38 handle. This is the highest level for this cross since the day after the Brexit referendum back in 2016 which sent the market into a tailspin and plummeted down to 1.20. 

 The GBPUSD is retesting the 1.38-1.4065 level that it broke through with conviction following the EU referendum back in 2016. Source: xStation

The region from 1.38-1.4065 has previously been a pivotal one with 3 attempts to break below it met with strong buying support in the past 25 years. The drop following Black Wednesday back in 1992, the fall following the popping of the .Com bubble in late 2000 and the decline seen during the financial crisis of 2008 all found a floor in this region and buyers sent the price back higher.

However, the fallout from the 2016 Brexit vote saw this level broken decisively and the downside continued with price tumbling all the way to 1.20. The recovery since then has been impressive but with a disorderly Brexit still a very real possibility as well as the domestic fragility seen in UK politics of late there is a feeling that breaching this zone to the upside may prove a bridge too far. 

 The median forecast for the GBPUSD rate by the end of March was 1.33 according to a recent survey from Bloomberg. Source: Bloomberg.

JP Morgan share this view with a recent note from the bank stating that they see the pair correcting lower to 1.30 by March 2018. This is the lowest forecast from a recent Bloomberg survey which showed the median projection was $1.33. However, not all of the respondents were that down on the Pound with ING seeing positive economic data and a Brexit transition deal boosting the pair to 1.53 by year end.