GBP/USD Daily Fundamental Forecast – October 26, 2016

GBPUSD had been quiet since the beginning of this week with the claims and counter claims concerning the Brexit process, settling down quietly and the pair also settled down near it range highs and continued to consolidate there. This trend continued for most of yesterday as well as the pair consolidated near 1.2240 without any specific bias. This continued till the US session when suddenly, the pair was rocked by a lot of volatility for no specific reason. It made a quick dip through 1.2200 and 1.2100 all the way to 1.2080 which has been the lowest for the past couple of weeks. The sudden volatility was related to some option expiries that happened during the NY cut and also related to month end flows that usually affect the EURGBP pair as the UK is expected to pay its EU membership fees every month.

The ramifications of this was felt in the euro as well but just as it looked that the pair might be looking at a very large correction, it quickly bounced back through 1.2100 all the way back to 1.2200 and it sits at 1.2165 as we write this. Again, there was no specific reason for the pair to bounce back except that the BOE Governor Carney said that they wouldnt be ignoring prolonged pound weakness. This was considered hawkish though we believe that it didnt warrant such a steep bounce. But considering the fact that there is not much liquidity around and there being EURGBP related demand during month end, such kind of volatility is only to be expected.

Looking ahead to today, there is not much news from the US or the UK regions which is natural for the last week of the month and we believe that the prices will be dominated by the month end flows. We continue to be bearish on this pair and we believe that the all rallies will be sold into by the bears and any approach towards 1.2230 is something that is worth selling into.

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