GBP/USD: Oversold conditions remain. A potential bottom remains elusive; Senate proposes stopgap solution

  • UK Mortgage approvals expected to continue to drop
  • No major revisions expected with Q2 GDP report
  • BOE overnight index swaps price in a peak rate of 5.369% at the Feb 1st meeting
  • US Government Shutdown risk remains as Senate negotiators propose stopgap solution

The British pound looks like it is heading for a further breakdown as dollar strength appears to be resuming.  Technical traders trying to find a bottom are getting frustrated as oversold conditions deepen and on doubts that a DeMark Buy countdown might yield a meaningful rebound.  The bearish trend has steadily broken below several key technical levels and weekly support from 1.2114 seems to be the next target.

The recent surge with the dollar was also supported by safe-haven flows from rising American government shutdown fears, so a potential stopgap solution could allow for the dollar rally to pause.  After the NY close a tentative proposal between Senate Republicans and Democrats would keep agencies functioning through mid-November. The potential solution fund federal agencies at current levels for another 45 days, with little support given towards Ukraine or disaster relief.  It isn’t clear if they have enough votes to avert an October 1st showdown, but momentum is growing for a band-aid solution.

If risk aversion remains the dominant theme of the week, it will be hard for the British pound to find key support.  Unless Treasury yields tumble and disinflation signs grow, short-term dollar strength seems likely.

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Ed Moya

Ed Moya

Contributing Author at OANDA
With more than 20 years’ trading experience, Ed Moya was a Senior Market Analyst with OANDA for the Americas from November 2018 to November 2023. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Prior to OANDA he worked with, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business, cheddar news, and CoinDesk TV. His views are trusted by the world’s most respected global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Seeking Alpha, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.