Uncertainty and potential risks in the event of a Brexit overshadowed the financial markets Monday and triggered a sharp sell-off in the British pound. Rating companies warned that a U.K. exit from the European Union would hurt business confidence and affect investment negatively. As a result, sterling fell to its lowest level in almost seven years, touching a fresh low at 1.4057. Traders are now wondering how low can GBP go and since we know about the sustainability of sterling’s trends and its ability to fall several consecutive trading days without a major correction, we expect further losses towards 1.40, 1.3960 and 1.39. We bear in mind that, for the time being, the 1.40-level could act as psychological barrier before heading towards record lows at 1.36. A next lower target could be at 1.4020, whereas current resistances are seen at 1.4250 and 1.43.
The next event risk for the pound will be Bank of England Governor Carney’s testimony scheduled at 10:00 GMT today. Carney testifies to lawmakers about the outlook for the U.K. economy and monetary policy and given the BoE’s latest inflation and growth projections, the odds favor further downside momentum.
The euro finally broke below 1.1070 and fell all the way down towards the 1.10-barrier, which has led a current support for the EUR/USD. We expect bearish potential to continue in the near-term, sending the currency pair towards 1.0970 and 1.0920. On the upside, previous support-areas at 1.1070 and 1.11 could now act as resistances.
The German IFO Survey is scheduled for release at 9:00 GMT and could have an short-term impact on the euro.
From the U.S. we will have Consumer Confidence scheduled for release at 15:00 GMT and figures are forecast to show a decline in February which could negatively affect the greenback in short time frames.
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