- GBP/USD has recovered as the dollar takes a breather from gains.
- Higher US yields, the Delta variant, Brexit and weak UK data point lower.
- Friday's four-hour chart shows bears are in control.
"It's coming home" – that cheer to England's football team may be at the top of Brits' minds ahead of the final against Italy on Sunday. For GBP/USD, perhaps "it is coming down" would be more appropriate. Cable has run up to 1.38, taking advantage of a dollar breather – but there are five reasons to expect it to fall back down.
1) Yields: The US dollar shrugged off the sharp drop in returns on American debt usually correlated with its strength. Now that Treasury yields have risen back above 1.30%, the greenback has room to rise.
2) Delta a win-win for bears: The highly transmissible Delta covid variant continues spreading rapidly in the UK, threatening the reopening – over 32,000 cases were reported on Thursday. While this strain is also pushing infections up in America, the safe-haven dollar can gain ground.
See Delta Doom is set to storm America, the dollar could emerge as top dog
3) Brexit: The EU and the UK agreed on a "truce" regarding the Northern Irish protocol during the summer. However, another issue has come back from the dead – Britain's divorce bill. Brussels wants some €6 billion more than London is willing to pay. That row is weighing on the pound.
4) Weak British growth: The UK reported an increase of only 0.8% in Gross Domestic Product in May, half the early expectations. While this is only a monthly rather than a quarterly report, a slower expansion does not bode well for sterling.
5) Bearish charts
Pound/dollar continues suffering from downside momentum and trades below the 50, 100 and 200 Simple Moving Averages on the four-hour chart. Moreover, the Relative Strength Index (RSI) is above 30, thus the pair is not oversold. Bears are in control.
Support awaits at 1.38, which provided support in late June, then by 1.3755, the daily low, and finally by the July trough of 1.3735.
Resistance is at 1.3835, which was a swing high earlier this week, followed by 1.39 and 1.3940 – stepping stones on the way down.
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