Despite the magnitude of the selloff already seen, the risks for GBP are still to the downside and 1.20 to 1.25 is now the objective for late Q3, according to George Davis, Chief FIC Technical Analyst at RBC Capital Markets.
Davis points out that during the eight independent GBP price slumps that he has identified over the last 40 years, GBP has on average fallen 18% against EUR and 14% against USD, with 20%+ falls happening on three occasions, and slumps have on average lasted 23 weeks before a material bounce. So far, GBP has only fallen a relatively small amount in historical terms. As such, Davis says it will take some time for GBP to reach a new stable equilibrium.
For the Euro, Davis thinks that breakup risk premium will continue to increase and EURUSD will test parity in Q3.
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