We have been bearish on the euro since October and it's made a major move to the downside but there is more downside to come in our view and we expect a move to 0.9500.
Read more: EUR/USD Analysis Forecast Sell Rallies or Break of Support
We have been bearish of GBP/USD since October in articles on this blog and we have seen a big fall from 1.3400 to 1.2355 as of the time of writing this article. Despite the big fall, we see far more downside to come - we have extended our downside target to 1.1650.
You can read our previous article on the GBP Click Here to View
When we reviewed market forecasts for the Year Ahead 2025 the majority were bullish on the GBP this was based mostly on the view the Bank Of England would be slow to lower rates compared to other major economies. We have argued in the past that the Bank of England will cut interest rates more than the market expects but even if they don't (which now looks likely) the GBP is going down as the economy is in such a mess and high interest rates will slow a stagnant economy and send it into recession.
GBP No Support from Interest Rates
Here is a view we read yesterday and it's wrong in our view: “Relatively firm UK yields should be providing the GBP with a little more support than has been apparent in recent weeks. Even at the short end of the curve, 1Y swap spreads have narrowed notably since November while the pound has retained a soft undertone against the generally firm USD.” ( SCOTIABANK) High yields won't support the GBP...
Bond Yields Up GBP Down
“The British Pound is dumped and bond yields are rocketing: we are seeing a repeat of the Liz Truss-inspired market ructions. A massive sell-off strikes the British Pound in midweek trade, and all signs point to anxieties over the UK's rising debt as being the culprit.” (Pound Sterling Live)
Debts rising at the same time the economy is slowing means the government may need to do another tax hike as the debt repayment costs soar which will hit economic growth when the economy is already struggling. The government borrowed £2BN from the market on Tuesday, to be repaid over 30 years, and ended up paying the highest interest rate on the debt since 1998!
Markets are "One of the biggest red flags in macro markets - and a sign of fiscal un-anchoring - is yields up and currency down. This is happening again in the UK (the last proper time we saw this was Q4 '22... after 'that' Budget). Looks ominous," (Viraj Patel, a strategist at Vanda Research.)
What about debt issued over 30 years? We are already at +5%!
Debts Up Taxes Up Economic Growth Down
In the recent budget, Chancellor Reeves expanded government spending and sought to pay for it via increased borrowing and higher business taxes in the October budget. As a result, economic growth has fallen and looks set to contract in the coming months. Without economic growth, the Treasury won't get the tax revenue it needs to re pay its debts. Reeves will probably have to raise taxes again which risks a negative doom-loop of ever-lower growth and widening budget deficits.
Technical Analysis
To see our daily analysis of GBP/USD with our exact entries, stops and targets as well as 14 other pairs go to our Members Center Below are the daily and monthly charts with the key levels to look out for in terms of selling the GBP.
We are heavily bullish of the USD and expect far more upside – we have a good yield advantage in favor of the USD and plenty of upside potential which would be boosted by a devaluation which we think is a strong possibility.
Read more: USD/CNH Analysis – A Big Uptrend and a Devaluation Coming?
We are USD/PLN bulls and see big upside against limited downside – Our view of the big fundamentals and key technical levels to look out for are outlined in the article below...
Read more: USD/PLN Analysis – PLN Going Down with the Euro and the Wildcard
We have been bearish of GBP/USD since it topped out at 1.3400 and we are now trading below 1.2600 despite the fall most forecasters remain bullish of sterling but the outlook as we come into 2025 is bearish in our view and we expect more downside...
Read more: GBP/USD Analysis – Big Downtrend Going Down to 1.200 or Lower
For several months we have been trading EUR/USD short and we have seen significant downside but there is far more to come in our view and we see EUR/USD trading down to the 0.9500 level in the coming months...
We have seen GBP/CHF Trade sideways in low volatility for a few months but this could all be about to end with a downside break In terms of the Russia Ukraine conflict if we get more escalation the GBP will fall on the safe haven CHF. Logic of the trade outlined below...
Russia Ukraine Escalation
“Russia has said that Ukraine’s use of long-range ATCAM missiles against its territory marked a “new phase of the Western war” against Moscow, and has said it will react “accordingly.” (ALJAZEERA) We will have to wait and see what Russia does but assume there will be retaliation.
The mainstream media see this escalation as a good move but keep in mind, the missiles will be directly controlled by NATO personnel as would Storm Shadow, Taurus, and Scalp missiles if used. Russia has already said that this will put NATO personnel in direct conflict with Russia.
Look to Buy Safe Haven CHF
The European currencies are the most vulnerable and we would expect the safe haven CHF to gain strength on its safe haven status. Even if geo-political risks don't escalate the GBP has little upside and plenty of downside due to speculative positioning.
Sentiment
If we want to work out the speculative positioning in GBP/CHF we need to look at how speculators are positioned in USD/CHF and GBP/CHF to get the cross data. Below is data from the CFTC Net Traders Positions.
In terms of the cross GBP/CHF, this means speculators are heavily long the GBP, while "smart money" commercials are short. In our Members center, we express the cross as a simple ratio, and any divergence of +10 we consider as a potential trade in favor of the commercials...
In terms of speculators, they hold 9 to 1 in terms of longs over shorts and commercials, hold 5.4 to 1 in terms of shorts over longs which gives us a divergence of 14.4.
We may not get an escalation from Russia in response to missile attacks but they have said they will so the odds are high of them doing so which means the CHF will rise on the GBP. The key levels of support and resistance to look out for on the chart below.
Technical Analysis
EUR/USD is a little oversold in the short term so we may get a bounce but it won't be sustained and we see far lower prices - The eurozone is a car crash and while it has seen a big move down we see far more downside to 1.000 or even lower- any bounce is a selling opportunity...
Read more: EUR/USD Analysis and Outlook Trading Big Bear Trends
Trump won the election and the pollsters were wrong again just as they were in 2016. Just as in 2016, the month leading up to the election was a great one for us as the USD soared higher but where to do we go from here is there more upside to come or will be see a major correction? Our view is while a little overbought in the short term corrections are buying opportunities.
At present we are focused on the "Trump trade" in terms of a stronger USD which has worked well but what if it were to end and we move to risk on? The JPY would probably correct to the upside against the US but risk currencies would correct more and it's worth looking for an upside breakout in AUD/JPY...
Read more: AUD/JPY Outlook and Forecast - Best Yen Cross Trade
EUR/USD Analysis ECB Preview
In terms of EUR/USD we have the ECB tomorrow and see limited upside and plenty of downside potential in the pair. Our view of the fundamentals sentiment and technicals below