GBP/USD – New lows on leadership woes

GBP lower ahead of more leadership votes

The Conservative party leadership election has not been kind to sterling so far, with contenders being forced to paint themselves as the bigger Brexiteer and the more willing to leave without a deal.

The efforts are deemed necessary to compete with the front-runner Boris Johnson and stand a chance of winning over the Tory membership, who’s views on these issues are well known. Unfortunately, these views don’t sit well economically and therefore with the currency which is why the decline has been quite consistent.

Another casualty will fall following the race today and if that is a remain-voter and/or a proponent of delaying exit day rather than embracing no-deal, it’s unlikely to sit well with the currency. It will also make for an interesting debate this evening, when the remaining contenders will face off, this time in the company of Johnson who will have a chance to defend himself.

GBPUSD Daily Chart

OANDA fxTrade Advanced Charting Platform

Where does the pound head from here?

Sterling has been on a tear lower for over a month now and there’s so far few signs that it’s letting up. Having taken out recent support yesterday, the pair is now trading at its lowest levels since the start of the year, with further support potentially being found around 1.2450-1.25.

As we approach these levels though, momentum looks to be slipping. The MACD histogram and moving averages are both showing signs of divergence, having failed to match the new lows made in the price. The stochastic isn’t quite there yet but it’s not really making new lows either.

GBPUSD 4-Hour Chart

The 4-hour chart is displaying similar divergence and in this case, the stochastic is on the same page. That’s not to say we can break the 2019 lows but lagging momentum is not an encouraging sign. Perhaps after such a long period of downward pressure, a correction of some kind may be warranted.

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam