GBP/USD Forecast: Coronavirus vs. Brexit fears, critical to wedge breakout
|- GBP/USD has been benefiting from USD weakness related to coronavirus contagion.
- Speculation about Brexit has been weighing on the pound.
- Wednesday's technical chart is pointing to a narrowing wedge.
Fear is gripping markets – but different concerns are pulling GBP/USD in opposite directions. Coronavirus headlines continue dominating the news, triggering a flight to safety in markets. Traders are flocking to American bonds, pushing the ten-year benchmark Treasury yield to record lows of 1.306. In turn, the US dollar is becoming less attractive – at least against major currencies such as sterling.
The latest scare comes from the spread of respiratory disease in Europe. Germany, Austria, Switzerland, and mainland Spain have joined the long list of places confirming new infections. The European epicenter remains northern Italy.
While number of UK cases is limited, a large group of Brits is confined to a hotel in Tenerife in the Canary Islands. An Italian couple staying at the hotel has tested positive and Spanish authorities have put all holidaymakers there on lockdown.
If more UK nationals are confirmed to carry the virus, the pound disease may eventually push GBP/USD lower. Diageo, a British-based beverage maker, has issued a warning related to the illness. Additional announcements by UK firms may also weigh on sterling.
For now, GBP/USD is underpinned by US dollar weakness. An issue closer to home is weighing on the pound – Brexit. The EU published its mandate for post-Brexit talks with and the document confirms the bloc's demands for a level-playing field – a topic that London has rejected multiple times.
Official talks kick off on Monday. While negotiators may compromise behind closed doors, the recent defiant rhetoric has been pushing the pound lower.
Overall, coronavirus and Brexit are in play – and both could move pound/dollar in various ways.
GBP/USD Technical Analysis
Downtrend resistance has been capping the pair since February 12 and steep uptrend support has been closing on the price from below. This wedge pattern suggests that relatively low volatility will be followed by a sharp move to either side. To which one?
Momentum on the currency chart is positive but the recent slide has sent pound/dollar below the 50 and 100 Simple Moving Averages after it failed to hold above the 200 SMA. All in all, the picture is mixed.
Support awaits at 1.2940, which cushioned the pair several times in February. It is followed by the round level of 1.29 and then by 1.2875 and the 2020 trough of 1.2850.
Resistance is at 1.2980, which held it down last week and then by the recent peak of 1.3020. The mid-February high and double-top of 1.3060 is next.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.