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Brexit shenanigans drove Sterling broadly lower on Friday. We see the potential for these declines to extend further, particularly against the Swiss franc.

 

Among GBP pairs it was GBP/CHF which fell the hardest on Friday, closing the session -1.5% lower and suffering its most bearish day in 10 months. Given that GBP/CHF has also been the weakest contender over the past three months, shorting GBP/CHF makes sense on a relative strength basis.

We can see on the daily chart the pair remains within an established bearish channel. Although the rally from the 1.2459 low had started to show potential for an inverted head and shoulders pattern (bullish reversal), Friday’s bearish range expansion put a quick end to it. Furthermore, two bearish hammers warned of weakness to the ‘rally’ after failing to break above the October ’17 lows and 50-day average. And Friday’s rout means momentum has now realigned with the dominant, bearish trend.

Currently consolidating near Friday’s low, it trades a little too close to 1.2459 support from a reward to risk perspective. However, a low volatility retracement beneath 1.2606 could allow for a better-timed entry whilst increasing potential reward to risk.

Ultimately, we’re looking for prices to break to a new 2018 low in due course. A bearish outside week suggests the corrective high sits at 1.2791, and a break of 1.2459 support opens up a potential 240-pip decline towards the June and August ’17 lows at 1.2220/41.

Matthew Simpson CFTe,Senior Market Analyst (Asia)