GBP/USD Forecast: Trump-ed and still locked down, critical support in danger
|- GBP/USD has been on the back foot amid growing Sino-American tensions.
- Preparations to lift the UK lockdown are underway and may move sterling.
- Monday's four-hour chart is showing the currency pair is nearing critical support.
"Buccaneering Britain" – the vision of the UK trading with all the world depends on global commerce and that is going in the wrong direction. Tensions between the US and China have intensified and that has been weighing on the market mood, boosting the safe-haven dollar.
US Secretary of State Mike Pompeo has said there is "enormous evidence" that the coronavirus emerged from a lab in Wuhan, China. He has added that US intelligence bodies continue investigating the issue, but his claim – contradicting Beijing's version that it stemmed from the city's "wet market" is causing tensions. Scientists have discarded the theory that the virus was manmade, but a leak from the lab is still harmful to China's image and to relations between the world's largest economies.
President Donald Trump has revived trade tensions by saying that China is not fulling the trade deal and has threatened to break away from it. The accord was signed only in January, as COVID-19 was spreading. The president added that the US death toll may reach 100,000 and continued urging states to reopen at a quicker rate.
The fate of the UK's shuttering policy will be decided in the next few days as the current lockdown expires on Thursday. The government is testing a contact tracing application on the Isle of Wight while it struggles to keep up with a rapid pace of testing. Both are needed in order to quickly curb new outbreaks.
COVID-19 deaths and cases have fallen significantly in recent days, but that may be due to the well-documented "weekend effect" – some of the counting is delayed to after the weekend, prompting a bounce later on. Nevertheless, the peak of the spread has already passed, as Prime Minister Boris Johnson declared. According to reports, Conservative Party donors are pressuring him to ease restrictions and also to extend the Brexit transition period. Both developments may boost the pound.
Talks between the EU and the UK are set to continue via video, with little progress reached so far. Michel Barnier, the EU's Chief Negotiator, expressed frustration after the latest round of talks.
Investors are already eyeing this week's top events – the Bank of England's rate decision on Thursday and US Non-Farm Payrolls on Friday. GBP/USD volatility, which has been significant. could further increase.
See GBP/USD Forecast: Upside locked in? Ongoing UK lockdown, BOE, and NFP to determine next moves
Later in the day, US factory orders are of interest, yet Sino-American relations and speculation about the UK lockdown will likely be more prominent in moving cable.
GBP/USD Technical Analysis
The four-hour chart is showing that pound/dollar is hovering above critical support at 1.2435. This is the meeting point of 50 Simple Moving Average and the uptrend support line accompanying the currency pair since April 21. It was a slow temporary support line last week.
Break or bounce? Momentum has turned to the downside and GBP/USD dropped below the 100 SMA, both bearish developments.
Below 1.2435, the next support line is 1.2385, which cushioned the pair last week, followed by 1.2360 and 1.23.
Resistance is at 1.2520, which held cable down last week, followed by 1.2575, which played a role earlier in April. The double-top of 1.2645 is the next level to watch.
GBP/USD Forecast: Upside locked in? Ongoing UK lockdown, BOE, and NFP to determine next moves
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