Why The GBP/USD Could Fall Even Further

The GBP/USD currently stands at just under 1.49 at the time of writing this article, but there are several reasons why I think this pair could fall substantially lower, maybe even as far as 1.30 in the coming weeks or months.

The first reason is simply because of the dire economic picture here in the UK. Every day there is bad news on the jobs front (today it was BT’s turn with the announcement that they are expecting to cut 10,000 jobs) and dire warnings about the forthcoming economic recession on the news. There is also the fact that banks are still reluctant to lend money, people are struggling to pay their mortgages, and retailers are really struggling. In short there is very little reason for optimism in the UK economy at the moment.

Furthermore most economists and financial experts believe that the US economy, although also weak, is in a slightly healthier state than the UK economy. This, combined with the fact that Mervyn King has hinted of another rate cut by the Bank of England, is of course very bad news for the British pound, and suggests the GBP/USD could fall even further.

If you look at the GBP/USD pair on a technical basis, the outlook is equally bearish. For example the Supertrend indicator is currently red (indicating a bearish trend) on the daily, weekly, monthly and quarterly charts which suggests that the GBP/USD is currently in a very powerful long-term downtrend.

Furthermore if you look at the quarterly chart over the last few decades you can draw a nice trendline under the two lows in 1985 and 2001. You will see that this trendline which stands at around 1.525 was broken yesterday so if it consolidates below this level for the next few weeks, then we could very easily see a strong fall to 1.30 or 1.40.

Of course there are no guarantees in trading and this is only my opinion, but it’s much easier to argue a case for the GBP/USD to fall to 1.40 rather than rise to 1.60, for example.

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