We have been bearish of the GBP in recent articles since it topped out above the 131.00 level and we have seen a big fall but see far more downside to come. The logic of our view and key technical levels to look out for below...

Speculators remain bullish on the GBP based on the view that interest rates could rise above the 6% level and also the economy will avoid a recession. In our view interest rates will not rise as much as the market expects and the economy looks set for recession...

Sentiment

On the chart below we can see a big fall in the GBP but speculators hold one of their biggest long positions in the last 10 years which points to more downside as these speculators exit the market on stop.

We posted the chart below a few weeks back which shows the 2014 speculative long with the the recent extreme chart below

UK Economy Slowing Up

This week we had PMIs from the UK: "UK service sector enters contraction as rate hikes begin to bite. The latest UK PMIs are unquestionably bad, and will give the Bank of England pause for thought as it nears the end of its tightening cycle." (INGTHINK)

The index for the services sector has slipped below the all-important 50 level which will give the Bank of England breathing space to halt rate rises after September.

In terms of UK GDP...

UK Inflation

UK inflation also is easing back and the Bank of England has an excuse not to raise rates too much going forward as they are well aware of the danger of a recession in the UK.

Interest Rate Expectations

We expect one more 25 bps hike the market expects 60 bps. We think we will get a hike in September and that will be the end of the hiking cycle.

In conclusion

We will see bounces in the GBP but they will be selling opportunities in our view and the USD is in a firm uptrend generally based upon a good yield, a robust economy, and finally is safe haven status. The USD up trend will continue and we view the GBP as one of the most vulnerable majors against the USD.

Technical Analysis

Our view of the major levels of support and resistance to look out for below.