Where now for the pound?

After a historical day for the UK, we have seen huge volatility and many are looking for ultimate targets for this deterioration. We look into three main currency pairs to help seek out key levels for the long-term.

Pound coin and dollar note
Source: Bloomberg

Sterling has already suffered hugely post-Brexit, with IN_GBPUSD reaching a new 31-year low, while the pound has reached near three-year lows against the euro and yen.

However, the UK remains in a state of economic flux, where the instability and uncertainty driven by the June referendum result is likely to drive further downside in the months and even years to come.

With that in mind, we pick through three of the top sterling crosses as a means to find long-term targets with a view to further weakness in the pound.

The pair has managed to breach a crucial zone of support last month, as the referendum result drove price to a new 31-year low. We have seen the pair subsequently fall past a crucial trendline support, with the 76.4% Fibonacci support retracement now coming into play.

It is highly likely that this will not be the end of the rout, with a break below the 76.4% retracement likely to spark another bout of losses. The distinct lack of support levels below $1.29 means that it makes sense to look towards key handles such as $1.25 and $1.20.

The fact that we have so few key support levels in view, it makes sense that we see a relatively consistent downtrend in play should the pair break below this Fibonacci support.

The safe haven aspect of the yen means that this pair has been one of the biggest losers since the referendum. The 17% fall since the highs on the night of the referendum highlight this.

With that in mind, it is highly likely that we will see further losses come into play over the coming months, with the monthly chart pointing towards two major areas of support.

Firstly, the ¥117.29-¥118.85 region represents the lows from 2009 to 2012. However, it is worthwhile watching for a potential return to the descending trendline which originates from way back in 1995.

There, of course, is a threat to yen strength from further BoJ action, yet with rates already in negative territory and recent action having done little to the value of the yen, this threat is not major.

IN_EURGBP is an interesting one, because the decision for the UK to leave the EU is perceived as detrimental to European integration, which has driven euro weakness.

Nevertheless, the widespread selling in the pound has seen this pair sharply appreciate out of a seven-year descending channel. The key here is whether we see a break through £0.8815, which would have significant implications. Key turning points for this rally are likely to be £0.8815, £0.9083 and £0.9804.

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