GBP/USD Forecast: Bowling back in business but sterling has reasons to stay stuck in a dark alley
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UNLOCK OFFER- GBP/USD has been on the back foot due to the US dollar's strength.
- The UK's gradual reopening may help sterling, but other factors may outweigh this development.
- Friday's four-hour chart is showing that momentum turned to the downside.
Casons, theaters – and bowling alleys – are among the establishments that will be able to reopen from the weekend in England. That is another step toward returning to normal after the UK suffered the highest death toll in Europe – even after reducing the number of mortalities due to a methodology change.
The pound-positive development is simultaneously marred by another COVID-19-related announcement – Britain will require all those coming from France, the Netherlands, and several other countries to quarantine.
While the announcement was rolled out in a more orderly fashion than the previous decree related to Spain, it has triggered an angry response in Paris. France will reciprocate with a similar measure causing tourism to suffer in both countries. Britain's move makes sense as cases in its southern neighbor have shot above the UK's:
Source: FT
The ongoing pain for sterling comes from prospects for the job market – Chancellor of the Exchequer Rishi Sunak's statement that "many people will lose their jobs" is still weighing.
Brexit talks are set to resume on Tuesday and headlines ahead of the talks may move the pound. However, officials are not expecting any outcomes before autumn.
The dollar has been on the rise as bond yields swung higher again – this time after a less successful debt issuance on Thursday, contrary to Wednesday's robust one. The fiscal impasse in Washington continues, and coronavirus cases have flattened, albeit at a high level.
The greenback gained ground also amid an upbeat jobless claims report – applications dropped below the one million mark – for the first time in 21 weeks. A more significant test awaits the economy and markets on Friday – retail sales for July. Government support kept consumption going in July, but the virus may have kept consumers at their homes. Economists expect a slowdown in the recovery.
See US Retail Sales July Preview: Expectations of moderation may be overstated
The University of Michigan's preliminary Consumer Sentiment Index for August is also of interest and is set to remain stable.
See US Consumer Sentiment Preview: Looking ahead
China said it has fulfilled the Phase One trade deal with the US – a statement coming ahead of high-level talks between the world's largest economies. Despite the deterioration in Sino-American relations, both Washington and Beijing would like trade to flow.
Any surprising clash in trade could boost the safe-haven dollar.
GBP/USD Technical Analysis
Pound/dollar has fallen over the 50 Simple Moving Average on the four-hour chart and momentum has turned negative – both bearish signs. Moreover, the recent swing high fell short of the previous one – a lower high – which is another downside driver.
Support awaits at the daily low of 1.3048, followed by the stubborn 1.3005 which is the weekly low. Further down, 1.2950 and 1.2905 are eyed.
Immediate resistance is at the daily high of 1.3075, followed by the weekly high of 1.3135. Further above, 1.3183 is August's peak.
More It’s a faulty extrapolation to see falling claims as a recovery indicator
- GBP/USD has been on the back foot due to the US dollar's strength.
- The UK's gradual reopening may help sterling, but other factors may outweigh this development.
- Friday's four-hour chart is showing that momentum turned to the downside.
Casons, theaters – and bowling alleys – are among the establishments that will be able to reopen from the weekend in England. That is another step toward returning to normal after the UK suffered the highest death toll in Europe – even after reducing the number of mortalities due to a methodology change.
The pound-positive development is simultaneously marred by another COVID-19-related announcement – Britain will require all those coming from France, the Netherlands, and several other countries to quarantine.
While the announcement was rolled out in a more orderly fashion than the previous decree related to Spain, it has triggered an angry response in Paris. France will reciprocate with a similar measure causing tourism to suffer in both countries. Britain's move makes sense as cases in its southern neighbor have shot above the UK's:
Source: FT
The ongoing pain for sterling comes from prospects for the job market – Chancellor of the Exchequer Rishi Sunak's statement that "many people will lose their jobs" is still weighing.
Brexit talks are set to resume on Tuesday and headlines ahead of the talks may move the pound. However, officials are not expecting any outcomes before autumn.
The dollar has been on the rise as bond yields swung higher again – this time after a less successful debt issuance on Thursday, contrary to Wednesday's robust one. The fiscal impasse in Washington continues, and coronavirus cases have flattened, albeit at a high level.
The greenback gained ground also amid an upbeat jobless claims report – applications dropped below the one million mark – for the first time in 21 weeks. A more significant test awaits the economy and markets on Friday – retail sales for July. Government support kept consumption going in July, but the virus may have kept consumers at their homes. Economists expect a slowdown in the recovery.
See US Retail Sales July Preview: Expectations of moderation may be overstated
The University of Michigan's preliminary Consumer Sentiment Index for August is also of interest and is set to remain stable.
See US Consumer Sentiment Preview: Looking ahead
China said it has fulfilled the Phase One trade deal with the US – a statement coming ahead of high-level talks between the world's largest economies. Despite the deterioration in Sino-American relations, both Washington and Beijing would like trade to flow.
Any surprising clash in trade could boost the safe-haven dollar.
GBP/USD Technical Analysis
Pound/dollar has fallen over the 50 Simple Moving Average on the four-hour chart and momentum has turned negative – both bearish signs. Moreover, the recent swing high fell short of the previous one – a lower high – which is another downside driver.
Support awaits at the daily low of 1.3048, followed by the stubborn 1.3005 which is the weekly low. Further down, 1.2950 and 1.2905 are eyed.
Immediate resistance is at the daily high of 1.3075, followed by the weekly high of 1.3135. Further above, 1.3183 is August's peak.
More It’s a faulty extrapolation to see falling claims as a recovery indicator
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