GBP/USD Forecast: Coronavirus, Brexit, and confluence rejection all point lower
|- GBP/USD has been on the back foot as coronavirus concerns benefit the dollar.
- Brexit speculation is set to move the pound ahead of official talks.
- Monday's four-hour chart is pointing to further falls.
No one is immune from coronavirus impact – even in countries with low exposure to the disease. GBP/USD has succumbed to US dollar pressure as gloomy headlines are weighing on the market mood. The safe-haven greenback is on the rise, shrugging off low bond yields.
The Chinese province of Hubei remains the epicenter of the disease and reports about removing travel restrictions proved premature. Nevertheless, the world's attention is moving to other countries. Italy has confirmed the four deaths and around 50,000 people are under lockdown in the north of the country. Several public events have been called off.
South Korea continues reporting new cases, mostly surrounding a closed religious sect, making the identification more complicated. Two cities have been designated as "special care zones." Samsung, one of the world's largest firms, shut down operations in one factory in the country.
In Italy, around 50,000 people are under lockdown and the death toll has risen to four. Events in the north of the country have been canceled. A serious outbreak closer to the UK also has a negative impact on the pound.
The US dollar is enjoying safe-haven flows due to the concerning headlines while ignoring lower bond yields, which previously made the greenback less attractive. Benchmark ten-year Treasuries have dipped below 1.40%, the lowest since 2016.
Brexit talks getting close
The EU and the UK are set to kick off formal negotiations on post-Brexit relations next week. Both sides have been exchanging heated rhetoric ahead of the talks and markets have learned to shrug off this posturing, expecting a deal to be struck behind closed doors, once the media is out o the way. However, as we get closer to the starting line, sterling may become more sensitive.
The most recent stark comments came from France. Amélie de Montchalin, the French Europe minister, has said she will not sign up for a bad trade just to meet Prime Minister Boris Johnson's deadline. Britain's large neighbor to the south has tended to be the toughest.
Pound/dollar bulls have plenty to worry about.
GBP/USD Technical Analysis
Cable's recovery attempt has been rejected at 1.2980, which provided support in January and is also the confluence of the 50 and 100 Simple Moving Averages on the four-hour chart. Momentum remains to the downside while the Relative Strength Index is above 30 – outside oversold conditions.
Bears are in control.
The round level of 1.29 is the next level to watch and is followed by 1.2875 and 1.2850 – the 2020 trough.
Resistance awaits at 1.2940, a swing low from early this month, followed by 1.2980 mentioned earlier. Next, 1.30 and 1.3060 await it.
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