GBP/USD Forecast: Support at risk as Brexit begins biting, greenback makes a comeback
|- GBP/USD has been retreating as the dollar gains ground and amid Brexit concerns.
- UK relations with China and several data points are also eyed.
- Thursday's four-hour chart is showing the pair is at risk of falling back to a lower channel.
Get ready for a no-trade-deal Brexit – that is the message conveyed by the Bank of England to commercial banks as negotiations between the UK and the EU are not going anywhere fast. Hopes for mutual concessions on fisheries and trade came and went – and so did Brussels' hopes for an intervention by Prime Minister Boris Johnson.
The lack of progress in the current round of negotiations on future relations – due to end tomorrow – mean the risk of the UK falling to World Trade Organization rules is growing, and that is sending sterling lower.
Britain's coronavirus deaths are edging closer to 40,000, another grim milestone that pressures the pound. While statistics are falling, the pace is relatively slow. Germany removed travel warnings to several countries but left the UK out – that snubbing may be seen in the context of fraught Brexit talks but is more related to the health situation.
Markit's Construction Purchasing Managers' Index jumped from 8.2 to 28.9, still well below 50, thus representing deep contraction in Britain's housing sector.
The US dollar is recovering after several days of falls. The greenback's comeback comes amid a slide of stocks from the highs. Racial tensions have somewhat calmed in the US, partially related to Minnestoa's move to press charges against three additional police officers that were involved with the murder of George Floyd. Markets have largely ignored the unrest despite its potential impact on the US elections.
US data beat expectations on Wednesday, with the ISM Non-Manufacturing PMI for May bouncing from the lows and ADP's private-sector jobs report showing a loss of fewer than three million jobs, exceeding estimates.
The figures have come ahead of Friday's all-important Non-Farm Payrolls, which could show the jobless rate leaping to around 20%. Weekly unemployment claims are due out on Thursday and will likely show another week of declines.
See: Jobless Claims Preview: It must be spring--signs of recovery
US coronavirus cases have stopped falling and daily deaths have risen above 1,000. Investors are currently shrugging off concerns about a second wave.
GBP/USD Technical Analysis
At around 1.25, GBP/USD is over 100 pips below the highs. The failure to reach the double-top of 1.2645 and a potential retreat back to the uptrend channel are bearish signs. On the other hand, momentum on the four-hour chart remains to the upside and the Relative Strength Index has dropped below 70, moving out of overbought conditions.
Support within the channel awaits at 1.2470, a swing high from early May, followed by 1.24, a round number. Next, 1.2260 was a stubborn resistance line and now switches to support.
Some resistance is at 1.2575, a stepping stone on the way up. The recent peak of 1.2615 and the double-top of 1.2645 are 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.