GBPUSD will soon be retesting its lows and looking to develop a market bottom some time in Q4 2016 / early 2017, according to Ron William, Technical Strategist at ECU Group in London.
William points to several pieces of evidence that suggest GBPUSD has much further to go before a proper bottom is formed:
1) GBPUSD was already in a two-year bear trend before the Brexit vote. A potential break under 30-year support at 1.40 was already on the cards.
2) A study of major GBPUSD price slumps over the last 30 years gives an average expected drop of -21%. So far, only three-quarters of this move has been achieved. A 21% drop would take GBPUSD to around the 1.15 level.
3) Relief rallies like we have just experienced are common during a downtrend and present false upside signals. William says that going forward any rebounds should be used as tactical selling opportunities.
4) A change in sentiment towards acceptance of a cheaper GBP and a belief that it could even bring certain benefits (for example a reduction in the current account deficit) suggests a potential realignment with the new price equilibrium is occurring.
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Watch ‘GBP/USD remains bearish for 1.15’ video (IG Media).