The fundamentals are starting to weigh further on the pound
The spectre of a no-deal Brexit and a more dovish BOE are reasons that are increasingly likely to weigh on the pound further in the coming weeks, as seen above.
As Brexit risks return, the pound looks headed towards revisiting familiar but troubling territory against the dollar – near the 1.2000 handle. The pressure from short-term rates potentially pricing in more rate cuts by the BOE will just add to that.
From a technical perspective, cable is also struggling and continuing its downside momentum after the double-top pattern at around the 200-day MA (blue line).
May has not been a good month whatsoever for the quid in that respect.
The technical break under the April low @ 1.2166 (also break higher in EUR/GBP) towards the end of last week is just compounding woes for the pound at the moment.
For now, buyers are able to keep their heads just above 1.2100 to start European morning trade (after having moved lower earlier) but the pound still faces major headwinds if it were to try and mount a challenge back to the upside.
As things stand, the balance of risks favour sellers with buyers having much work to do.
The first step is to try and move back above the April low @ 1.2166 but even then, I would argue that the pound has the ‘sell on rallies’ poster stuck all over it at the moment.
And that should apply as long as the BOE keeps up with their rhetoric and as we continue to expect Brexit negotiations to go down to the wire i.e. 30 June.