The discounted gloomy UK outlook both prevents a new bold depreciation and a much stronger currency. The technical picture suggests a new turbulence and bearish pressures.

GBPNZD made the fresh post-float lows following the Brexit vote. We expect further slumps below recent lows of 1.6758 during the next few months.

On the contrary, with a real risk to see short-lived spikes in liquidity air pockets below 1.7450 levels. Near-term, a moderate appreciation in GBP seems to be most likely as the market cleans extreme GBP shorts and adjusts the overshoot below interest rates and the expectations of RBNZ’s OCR cut to keep key rates at 1.75% also to add pressures on kiwi dollar.

GBP tumbled sharply against all major currencies after the 24 June Brexit vote; and again following UK PM May’s announcement that formal negotiations would begin before Mar 2017, which sparked concerns that there would be a “hard” exit.

The pound remains sensitive to Brexit developments and there should be plenty of headlines on that topic to keep GBP volatility high during the year ahead.

Technical Outlook:

GBPNZD tumbled by 9% post the Brexit referendum on 24th June and has declined by another 13% since then, with the post-float lows of 1.6758 made on 7th Oct (following PM May’s announcement).

We expect to see fresh record lows during the next few months, with any abrupt spikes, on the contrary, are limited to the extent of 1.8027 levels (the lows of the earlier contracting range).

Oversold momentum indicators signal one such correction looms during the next week or two. Positioning also indicates a high risk of the near-term further corrections.

One can stay short in mid-month futures on every rally on hedging grounds.

Alternatively, those who are the skeptics on RBNZ’s OCR cuts on Nov 10th, can again on hedging grounds use diagonal debit put spreads, buy 1m2w 1.7736/1.6718 at net debit.