The real sell-off from BoE Governor King’s dovish comments on Tuesday are finally taking their toll today. We’re witnessing the selloff we anticipated considering the downturn the Cable experienced last month following the BoE’s unexpected injection of liquidity. The GBP/USD has collapsed through all of our previous uptrend lines and supports, forcing us to readjust and re-evaluate.

The Cable’s decline today is not surprising, yet counters the consolidation occurring in the EUR/USD and gold. The Cable is diverging from its positive correlations from the second time this week, indicating the currency pair’s movements are being determined by factors beyond fundamentals. Investors are pricing in future loose monetary policy from the BoE since it’s clear the central bank is adamant about holding down the Pound. The central bank’s intentions are clearly working; the Pound is depreciating heavily against both the Dollar and Euro.

The BoE’s intentions are to make Britain’s service and manufacturing industries more attractive globally. It will be interesting to see how British economic data fares at the end of September since the BoE may be alluding to rough times ahead. Regardless, we expect the Pound’s comparative weakness to continue for the near-term since Britain will not release much economic data next week. Any broad-based strength in the Dollar and weakness in U. S. equities will only exacerbate the Cable’s downturn. However, continued broad-based weakness in the Dollar and strength in U. S. equities would help limit the GBP/USD’s declines.

Technically speaking, the GBP/USD’s decline beneath what is now our 3rd tier uptrend line indicates the currency pair will likely retest September lows in the near future. The downtrend is clearly in the driver’s seat with little technical or fundamental incentive to make a legitimate change of course. However, if the Cable can climb back above our 3rd tier uptrend line, it may at least be able to salvage a respectable level of consolidation. The GBP/USD does have several uptrend lines we can form before we become overly concerned about a more protracted decline. The key will be for the Cable to stay above September lows and the highly psychological 1.60 level should the pullback continue. As for the topside, the Cable faces multiple downtrend lines and the 1.65 level becomes a psychological barrier once again. Since Britain will be quiet on the data-front next week, investors should keep an eye on the EUR/USD and gold for any technically significant movements. 

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