At the referendum on Britain’s European Union (EU) membership on June 23, the Leave Camp won over the Remain Camp with 51.8% of Britons voting to leave the union. This sent a huge shockwave through global financial markets, mainly due to investors expecting Britain would stay in the EU.
GBP started the new week with a 190-pip gap down, trading at $1.34051 at the time of writing. The pair GBPUSD hovered around the lowest level since 1985, as investors sank into bearish sentiment after the Brexit event, causing a huge unsettling across the world. According to top economists from Goldman Sachs Jan Hatzius and Sven Jari Stehn on Sunday, the vote to leave the EU is likely to push Britain into a recession by 2017. They forecast that GDP growth in the UK was 1.5%, down 0.5% compared with the previous prediction, while the next year’s growth would be 0.2%, a 1.8% drop from the last forecast.
The Bank of England assumed that the sterling could continue the down move in the future as investors have priced on both short-term and long-term upcoming damages to the nation’s economy.
The U.S dollar continued its gains on Monday after the Brexit referendum results, as money flowed into perceived safe-haven currencies. However, a further rise of the greenback can put pressure on the Fed’s attempt to raise the interest rate. The divorce between the UK and EU can therefore have negative impacts on the US economy, and some analysts predicted that the central bank would hold the US rates unchanged at least for the rest of 2016.
Fed Chair Janet Yellen stated before the Brexit referendum that if Britain left the EU, the US economic outlook will be negatively impacted, affecting the Fed’s decision for another rate hike this year. Goldman Sachs has expected that US economic growth for the rest of the year would be 2% in comparison with the previous forecast of 2.25%.
GBPUSD plummeted from 1.50135 to the 31-year low at around 1.32158 after Britain’s vote to leave the European Union.
The price has turned to below the 10-day and 50-day moving averages, suggesting a downtrend kicked off. The signal trend indicator is suggesting short positions. With RSI lingering around 30, the pair is supposed to continue with further down-move and may retest the support level at 1.32158.
Trade suggestion for Binary Options – Buy a Digital Put Option from 1.34097 to 1.32158 valid until June 27, 2016.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
