Sterling’s flash crash is just the beginning

On 4 October I asked the question whether the Pound is heading towards parity with the US dollar, something which even on Tuesday appeared to be scaremongering. This is not the case now…

Sterling/Dollar: The flash crash is just the beginning

I would have to confess the real surprise for me as far as Sterling is concerned is not that we have just witnessed a flash crash, but that this did not happen back in the summer. True, we already had the plunge in the wake of the Brexit vote. But as soon as interest rates were lowered, and the Bank of England’s new stimulus was flagged, the UK currency became a one way bet. This was despite the great and the good (those who can get onto the mainstream media) assuring one and all that support for Sterling/Dollar was just below $1.30. Clearly it was not. Looking at the daily chart of the cross it can be seen that the overnight move to the downside was merely testing the floor of a falling trend channel in place since as long ago as the end of May. The support line projection is pointing just below $1.20 and this could stem losses in the near term. However, even a retest of the sub $1.20 zone would signal that we have certainly not found a floor for this market, and that the dreaded return towards parity could be waiting for us by the end of this year.