GBP/USD Forecast: Will Boris' boost lift the pound? Five reasons to doubt it as the pair trends down
|- GBP/USD has been trying to recover as markets stabilize and PM Johnson promises stimulus.
- Coronavirus concerns, Brexit, and pricing in of the plan may trigger another fall.
- Monday's four-hour chart is pointing to the downside.
Another Boris boost? Markets expected a boost in investment after the late 2019 elections – which ended in a landslide victory for the Conservatives. And then came coronavirus. Will the pound rise as Prime Minister Boris Johnson promises fiscal stimulus?
Johnson has said on Monday that he will double down on investment on infrastructure, technology, and education ahead of a more detailed speech on Tuesday. The PM – well-versed in history – channeled Franklin Delano Roosevelt's New Deal. The US President's program helped pull America out of the Great Depression.
GBP/USD is rising amid prospects of a considerable boost to the economy and amid a tad of dollar weakness – as markets stabilize after Friday's sell-off and the safe-haven greenback loses some of its appeals.
However, there are reasons to doubt this will last:
Five reasons to remain bearish on GBP/USD
1) Fiscal hopes already in the price: Johnson's Conservative Party is not David Cameron's nor Margareth Thatcher's. After years of post-crisis austerity, the Tories shifted toward wooing northern voters and had previously promised to spend. More specifically, Johnson is a fan of pompous infrastructure projects from his days as Mayor of London, so that is no surprise either.
2) Brexit: The fifth round of talks between the EU and the UK kicks off on Monday, and this time they are labeled as "intense." However, recent comments have not suggested any breakthrough is likely. Will face-to-face talks make a difference? It is the first time that happens and Johnson said "the tiger is in the tank", but doubts are in place given recent past experience.
3) Coronavirus in the UK: While the COVID-19 curve is falling, Britain's reopening remains slow and the elevated number of deaths in comparison to European peers remains worrying. Moreover, a potential flare-up in Leicester is also worrying.
4) Coronavirus in the US: While markets seem calmer on Monday, America is struggling to contain the illness. Arizona and Georgia reported record infections over the weekend, the positive test rate in Texas remains elevated and California announced new restrictions. New figures from the US may dampen the mood.
5) Clear downtrend
GBP/USD is trading under the 50, 100, and 200 Simple Moving Averages on the four-hour chart, and momentum remains to the downside. The Relative Strength Index is above 30, thus outside oversold conditions. Moreover, any recovery attempt may be capped by the downtrend resistance line that has been looming over cable since mid-June.
Overall, bears remain in control.
Support awaits at 1.2340, a support line from two weeks ago, followed by 1.2315, Friday's low. The next level to watch is 1.2250.
Resistance is at 1.24, a round number that also provided support in mid-June. It is followed by 1.2465, a swing high from last week, and then by 1.25, another round number. Further above, 1.2550 and 1.2620 await GBP/USD.
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