GBP/USD prone to more weakness - Scotiabank

Shaun Osborne, Strategist at Scotiabank, said that the Pound remains prone to more weakness, while the short-term technical picture looks neutral to bearish.

Key Quotes

“Sterling is a little changed on the day and remains prone to more weakness we think. UK construction output plunged 1.5% in August, well below expectations of a flat outcome. These data tend to be choppy and around half the August drop was due to weaker infrastructure spending. However, a secondly quarterly fall in construction output will be hard to avoid, reflecting broader uncertainty about the economy around and following Brexit.”

“BoE officials have been speaking at a number of engagements today; Gov. Carney suggested that the BoE was not completely indifferent to the pound as it affects inflation and monetary policy. He also suggested, however, that policy makers were willing to allow inflation to run hot (and perhaps, therefore, the GBP to slip lower) for a while in order to foster growth.”

“GBP/USD short-term technicals: neutral/negative—Sterling retains a neutral, short-term undertone. Intraday gains yesterday were easily capped under 1.23 and we continue to see significant technical hurdles to a sustained GBP rally at this point – specifically the strong, bearish alignment of trend strength oscillators which suggest ongoing downside risks and limited scope for GBP gains nearterm. We continue to see strong resistance around 1.2300/10 and view short-term GBP gains as a sell.”