- GBP/USD has been on the back foot as the safe-haven dollar gains following the presidential debate.
- The pound's failure to benefit from upbeat GDP figures also points lower.
- Wednesday's four-hour chart is painting a mixed picture.
"When the stakes were that high, the debate couldn’t have been lower" – the words of CBS political analyst John Dickerson summarize an ugly clash between President Donald Trump and challenger Joe Biden. Politics can be nasty everywhere, but it became worse than that.
For markets, the 90-minute televised debate turned from ugly and chaotic to ominous for the fate of the world's strongest country and largest economy. President Trump refused to say if he would accept the election results and also seemed to encourage a white supremacist group.
Fears of a contested election and a constitutional crisis sent stocks down and the safe-haven dollar higher, pushing GBP/USD lower.
More Presidential Debate: Stocks set to suffer on Trump's refusal to accept the results
Sterling had a chance to recover after the UK published final Gross Domestic Product figures for the second quarter. The initial report of a 20.4% coronavirus-induced collapse was replaced by a fall of 19.8%. A higher base would help the British economy recover. However, the pound's failure to bounce exposes its weakness.
Apart from the outsized impact of the debate, GBP/USD is also struggling due to Brexit concerns. Hopes that the EU and the UK would enter a negotiating "tunnel" – a term referring to intense talks – diminished. While many do not see a deal until the last minute, there were reports about progress on trade topics.
While political analysts and spin doctors continue digesting the debate, several economic issues are set to stir markets. ADP's labor market statistics are set to show a pickup in hiring in September – 648,000 against 428,000 in August. The firm's figures have not been well-correlated with he official Non-Farm Payrolls figures in recent months. Nevertheless, it serves as the first clue toward Friday's data and is set to stir markets.
See US ADP September Preview: Payrolls rise, correlation and interest falls
The final GDP release for Q2 is set to confirm an annualized crash of 31.7% in output. Apart from the headline, investors will also be eyeing changes to personal consumption and government support – the latter being critical to stabilizing the economy.
Talks between Republicans and Democrats remain deadlocked and the chances of a new fiscal package seem to be diminishing as the clock ticks down to election day. The ugly debate and the battle over nominating a new Supreme Court Justice to lower the chances of a deal. In turn, that could boost the safe-haven dollar.
Overall, there is room for more falls for GBP/USD amid dollar strength and pound weakness.
GBP/USD Technical Analysis
Pound/dollar's positive momentum on the four-hour chart is diminishing and it continues struggling with the 100 Simple Moving Average. On the other hand, the 50 SMA seems to support cable.
Support awaits at 1.2805, which was a swing high last week, followed by 1.2765, which cushioned it earlier in the month. The next levels to watch are 1.2710 and 1.2675.
Resistance is at 1.2870, the daily high, followed by the weekly high of 1.2935. Further above, 1.30 and 1.3040 await GBP/USD.
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