10:29, 29 November

Enjoys Support at 1.27 as BOE Warns over Brexit

For the last several weeks, the market has seen a reasonably volatile GBPUSD ease lower from its then three week high near 1.32 earlier this month down to monthly lows below 1.2750. In doing so it has firmly established the 1.27 level as a key support level as the currency pair has enjoyed considerable support from this level on several occasions in the last few months. Should the GBPUSD drop through the support at this level, then it could fall considerably further with no obvious support levels nearby. The other key level presently is 1.3250 which has repeatedly fended off the currency pair’s attempts to move higher, although this remains some distance away.

Around mid-August the GBPUSD also rallied well which saw it regain lost ground from a 15 month low below 1.27, before reversing strongly again at 1.3050. Throughout July the GBPUSD was content to trade in a very small range right around the 1.31 level. It was also feeling some selling pressure from the resistance level at 1.32. The 1.30 level that provided strong support to the GBPUSD and was a key level throughout 2017 seems to have lost its significance as the 1.3050 is more relevant presently.

Throughout most of May the GBPUSD dropped dramatically from the resistance level around 1.43 down to the 1.32 level. The 1.36 level provided some resistance to the sterling in the last nine months or so and providing a little bit of support, except the GBPUSD continued lower through this level. Earlier this year we were looking at the resistance level at 1.43 looming like a dark cloud in the distance ready to strike. Several times this year the resistance around that level stood firm and sellers jumped all over the GBPUSD forcing it down to several lows. Interestingly, despite all the aggressive selling it wasn’t so long ago the GBPUSD hit a two year high above 1.43.

The Bank of England (BOE) has said Britain risks suffering an even bigger hit to its economy than during the global financial crisis 10 years ago if it leaves the European Union in a worst-case Brexit scenario in four months' time.  The BOE published an assessment of different scenarios related to the U.K.'s withdrawal agreement from the EU and made the claim that a "disorderly" exit from the European Union would plunge the U.K. economy into that position.  In the "disorderly" scenario, the U.K. "loses existing trade arrangements that it currently has with non-EU countries through membership of the EU." The central bank added that "the U.K.'s border infrastructure is also assumed to be unable to cope smoothly with customs requirements."  The bank also outlined the impact of a "disruptive" Brexit scenario that would see unemployment rise to just below 6 percent."  Our job is not to hope for the best but to prepare for the worst," BOE Governor Carney told a news conference, noting that Britain's banks could cope with the worst Brexit shock.  Carney defended accusations that he was spreading panic.  "Parliament has demanded this analysis," he said. "It's not supposed to make people scared, it's supposed to provide reassurance that, even if this happened, which is not likely, the system is more than ready for it."