GBP/USD freefall: Where will it stop?

Cable traders will remember today for a LONG time.

The UK government’s announcement of a “mini” budget cutting taxes and capping energy bills has spooked international investors, leading to a surge in UK gilt yields and driving GBP/USD down to its lowest levels since 1985.

While we’re still a long way from GBP/USD parity, today’s price action marks a big step in that direction.

In the near-term, traders will be asking when the selling will stop. After breaking below the COVID panic lows, the 1985 low in the 1.0500 area could beckon in due time, but given the deeply oversold reading on the 14-day RSI, we would expect a short-covering bounce before then as long as we don’t see financial markets implode in the coming week or two. There is also an outside chance of UK policymakers intervening in the market in the coming days to stem the bleeding.

This week’s big breakdown below previous support in the 1.1400 area means traders will be looking to sell any rallies above 1.1100 or 1.1200 in the coming week, with only a break back above 1.1400 giving bears pause.

Source: TradingView, StoneX

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