GBP/USD Forecast: Frosty Brexit relations, US coronavirus record, downside momentum all point lower

GBP/USD has been on the back foot amid EU-UK tensions.
The surge in US coronavirus cases is set to continue weighing on sentiment.
Friday's four-hour chart is showing that momentum has turned to the downside.

Yohay Elam FXStreet

"Some of the EU's unrealistic positions will have to change if we are to move forward" – David Frost's frosty comments have added to the pessimism about Brexit talks and are weighing on the pound. Frost, the UK's top Brexit negotiator, spoke ahead of the first face-to-face talks with the bloc due on Monday.

Michel Barnier, his opposite number in Brussels, sees a real breakthrough coming only in October. Without a deal, Britain will fall to unfavorable World Trade Organization terms in 2021 – only six months away. These recent comments diminish the optimism after Prime Minister Boris Johnson's call with EU officials.

The second factor weighing on GBP/USD is the surge in US coronavirus cases. Daily infections neared 40,000, a record. While mortalities are trending lower, concerns that health systems will be unable to cope have led Texas to halt its plans to reopen the state's economy. The Center for Disease Control (CDC) warned that maybe 23 million Americans were infected, ten times the official figures.

President Donald Trump, who is down in national and battleground polls, insisted that the US economy will not shut down but rather roar forward. Durable Goods Orders for May pointed to a rebound, surging by 15.8%, better than projected. However, weekly jobless claims have remained close to 1.5 million, a stubbornly high level.

Personal Spending and Personal Income figures for May are due out on Friday and will be of interest, competing with coronavirus statistics. Stock markets staged a late rally on Thursday but investors may prefer to take bets off the table ahead of the weekend.

See US Personal Income and Spending May Preview: Markets look ahead and behind

The Federal Reserve requested banks to refrain from buyouts and dividends in order to preserve their strength amid rising uncertainty. That may also weigh on sentiment. The University of Michigan's final Consumer Sentiment Index gauge for June will have the last word of the week.

Overall, there are reasons to worry about the pound and factors favoring the safe-haven dollar.

GBP/USD Technical Analysis

Pound/dollar is capped by the downtrend support line that accompanies it since mid-June. It has recently dipped below the 200 Simple Moving Average on the four-hour chart and momentum turned negative – bearish signs.

Support awaits at 1.2380, a recent trough, followed by 1.2340, Friday's low. Further down, 1.23 and 1.2250 date back to late May and early June.

Resistance is at 1.2470, a swing high from earlier this week which also converges with the 50 SMA. The next line to watch is 1.25, a psychologically significant level, and then 1.2550, the weekly high.

Why the dollar is king in the US coronavirus comeback? Discover what to watch out for!

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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