- GBP/USD has benefitted from the market rebound and dollar weakness.
- Brexit tensions, Britain's "pingdemic" and global covid concerns about trigger a downfall.
- Thursday's four-hour chart is showing cable is not oversold anymore.
Every trend has a countertrend – and these tend to be wilder in GBP/USD than in other currency pairs. Cable's sharp drop to five-month lows and the improving market mood have been behind the swift recovery. After a sell-off on Monday, stocks have been rebounding and demand for the safe-haven dollar has been diminishing.
How long can the pound ride on dollar weakness? GBP/USD's upswing may hit roadblocks for three reasons:
1) Brexit
David Frost, the UK's Chief Negotiator, officially announced that Britain wants to reopen the Northern Irish protocol. He said that the signed agreement is causing problems, including empty shelves in supermarkets. The row did not wait for the end of the summer.
The EU rejected any change to the hard-fought deal which was designed to prevent a border in Ireland, one that would endanger the Good Friday peace agreement. The Brexit accord consists of a customs barrier in the Irish Sea – separating Great Britain from the UK.
Aggravated tensions could weigh on sterling.
2) Pingdemic
UK COVID-19 cases remain high – at over 40,000 per day, but at least they are not rising as a result of the grand reopening on Monday, at least for now. However, hundreds of thousands of Brits are being "pinged" every day by an application warning them of being exposed to somebody that tested positive to the virus.
Those heeding the app's advice need to self-isolate, and that is causing staff shortages – including in supermarkets. Apart from fears that the UK would be forced to return to lockdown, the impact of this pingdemic could also drag the economy down.
3) Mood swing
Monday's market sell-off is not necessarily over. Coronavirus cases continue rising all over the world, including in the US, the largest economy. If the trend continues, markets may have a rethink about the "buy the dip" move and take another plunge.
In turn, the safe-haven US dollar could benefit from another boost, reversing GBP/USD's recovery even if sterling defies British concerns.
US weekly jobless claims and ongoing infrastructure talks in Washington are also of interest, but they are overshadowed by the three issues above.
GBP/USD Technical Analysis
Pound/dollar has exited oversold conditions according to the Relative Strength Index on the four-hour chart. However, that massive bounceback has still left the currency pair below the 50 and 100 Simple Moving Averages and momentum to the downside. Bears are still in control.
Some support awaits at 1.3730, the late-June low. It is followed by 1.3670, the broken double-bottom, and then by 1.3620, 1.3595 and finally 1.3570.
Some resistance is at the daily high of 1.3758, followed by 1.38, a support line from last week. Further up, 1.3860 and 1.39 await the bulls.
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. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD steady below 1.0800 after US PCE meets expectations
EUR/USD remains depressed below 1.0800 after soft French inflation data, amid minimal volatility and thin liquidity on Good Friday. The pair barely reacted to US PCE inflation data, with the Greenback shedding some pips. Fed Chair Jerome Powell set to speak ahead of the weekly close.
GBP/USD hovers around 1.2620 in dull trading
GBP/USD trades sideways above 1.2600 amid a widespread holiday restraining action across financial markets. Investors took a long weekend ahead of critical United States employment data next week. Fed Chair Powell coming up next.
Gold price sits at all-time highs above $2,230
Gold price holds near a fresh all-time high at $2,236 in thinned trading amid the Easter Holiday. Most major world markets remain closed, although the United States published core PCE inflation, the Federal Reserve’s favorite inflation gauge.
Jito price could hit $6 as JTO coils up inside this bullish pattern
Jito (JTO) price has been on an uptrend since forming a local bottom in early January. Since then, JTO has revisited the key swing point formed in early December, suggesting the bulls’ intention to move higher.
Key events in developed markets next week
Next week, the main focus will be inflation and the labour market in the Eurozone. We expect services inflation to be impacted by the easter effect, while the unemployment rate to be unchanged.