It might be time to sell Sterling (Cable) – by- Michael Oyebamiji

GBP against all major currencies especially the USD has rallied massively over the past couple of weeks to make a new high for 2016. This is a move which could be attributed to an oversold condition which we have seen in the first quarter of 2016.
However, I think it is now time to see another big drop to the downside on cable. Some of the reasons why I think this pair should drop will be highlighted below. Firstly, major fundamental data surrounding the UK economy are now indicating contraction or a shrinking economy. Let’s take for example the Manufacturing PMI data for April. The final indicated a drop below 50.0, this is the lowest reading since February 2013 and any figure below 50.0 is a strong indication of contraction. Also, Services PMI data also dropped to 52.3, this is also the lowest level since 2013 and lets bear in mind that the UK economy is more of a service economy more than 75% of its revenue comes from the services industry. One major factor which could be attributed to these negative data could be the uncertainty regarding the outcome of the upcoming UK referendum in June, next month. There are quite a lot of uncertainties regarding the future of UK in Europe and as result of that, many businesses are putting all sorts of investments on hold until after the referendum in June, this is already having a negative impact on the UK economy as highlighted in the PMI reading. Hence, this is another reason why I think cable will continue to depreciate until after the referendum because of uncertainty and risk.
Furthermore, the Bank of England over the weekend, made it clear to bank executives that should in case of a Brexit, Bank of England will have to cut interest rate lower. This is another dovish tone which market could start pricing in ahead of the Referendum. It should be noted that some market participants are already speculating a possible rate cut in the UK because of slowing economy and low inflation.
The last reason why I think cable should drop is based on my technical point of view. After breaking the January highs last week at 1.4692, it rallied all the way to 1.4798/1.480 to make a new 2016 high; this level is a very important resistant level which held pretty tight. Failure to close above 1.480 is an indication that cable is over-done to the upside and bears are ready to take over.