When Will Cable's Summer Doldrums End?

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SusanaP
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Bergabung: 18 Mei 2018, 23:03

When Will Cable's Summer Doldrums End?

Postoleh SusanaP » 10 Agt 2018, 01:05

Waiting for Godot is a well-known play by Samuel Beckett where in short, nothing much happens and nothing is certain. This may sound boring but really, it’s anything but.

The summer months in markets remind us of this at times. They are historically well-known for being some of the quietest months in the markets with razor-thin volumes. Indeed, the dollar has traded in such a narrow range this summer that its daily ‘standard deviation’ is now the lowest this year and closing in on historic lows.

However, one move that has caught our eye is that of sterling, which is the weakest major this quarter and has recently hit levels against both the US dollar and euro last seen in August/October 2017. We’ve printed six consecutive down days since the BoE hike last week. Interestingly, too, its three-month implied volatility is currently the highest since late February.

Why so? Many in the market are citing Liam Fox stating that the odds of a breakdown in Brexit talks stands at 60%. Even if this is posturing and the UK Government’s tactics are to talk-up the chances of this happening, does this warrant Wednesday’s move lower through 1.29 in cable? Some are also citing seasonal factors with the average move in GBP/USD being near -1% over the last nine Augusts.

Of course hard Brexit jitters have always been present in sterling, threatening to reignite at any stage. Indeed, there were rumors on Thursday that PM May is stepping up ‘hard Brexit’ preparations and a cabinet meeting is set for September to progress this position.

Whatever happens, we are watching to see where cable goes from here after such strong selling pressure. Intraday signals suggest a minor low may have been reached but any gains for GBP remain limited when seen in the context of the long-term, well-defined downtrend in the pair since making highs in April.

With trend signals bearish on numerous timeframes, any moves higher should be capped by the previous swing low around 1.2958. This means we could fall further to 1.27-1.28 into September with this strong bearish momentum at the fore. As we know, summer markets may tend toward the boring, but they can be anything but that.
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