I am pretty sceptical of last week’s downward breakouts in Sterling, and have not traded them, even though the markets are still hanging around the breakout levels. Why?

First, the market has been tending to rally on volume and pull back on low volume (and consequently thrust has been close to zero or mildly positive for a few days since the breakout).

Second, things have not got so much worse since the election that a sell-off seems justified. Interest rates are going to have to stay low for a while as the government tackles the deficit, but that was known anyway, and Sterling may get some credit for budget discipline. Exports will suffer in any economic slowdown in the Eurozone and from the falling euro, but then the thing to do is short the euro — as I have — and not Sterling (and actually the correlation between EUR/USD and GBP/USD has been falling through the euro crisis).