GBP/USD Forecast: Sterling set to suffer from specter of London lockdown, Brexit impasse

  • GBP/USD has been struggling to hold onto 1.30 amid rising UK COVID-19 cases. 
  • Brexit talks continue, yet without prospects for a breakthrough.
  • Thursday's four-hour chart is showing bears are gaining ground.

Liverpool first, London next? The surge in coronavirus cases is not limited to northern England and new measures are likely also in one of the world's largest financial centers is bracing for a major halt in daily life – which may have more severe consequences on the economy. 

The latest reports suggest that the capital will enter Tier Two lockdown from Friday night, a blow to the economy. 

Falling temperatures mean that people stay more indoors, contributing to the spread of the disease, in the UK and in Europe. A lack of warmth is also felt in Brexit negotiations, as EU leaders are set to authorize further talks with the UK – yet without intensifying them. Prime Minister Boris Johnson retreated from his aim to abandon the negotiating table, but only after persuasion and without any breakthrough he can write home about. 

A lackluster communique from the EU Summit could further weigh on sterling.

On the other side of the pond, the main theme is also stalled talks. Treasury Secretary Steven Mnuchin seems frustrated with the piecemeal progress in fiscal stimulus negotiations – and he had been one of the optimists. As the clock ticks down toward the elections, Senate Republicans are focused on the Supreme Court and Democrats are disinterested in granting President Donald Trump a political gift after he rejected their offers. 

The lower chances of a deal may boost the safe-haven dollar. The greenback may also gain ground if weekly jobless claims disappoint once again. The labor market's recovery seemed to have stalled and recent figures fell short of estimates. Moreover, a backlog of applications in California may result in a bump up, triggering additional flights to the safety of the dollar. 

See: US Initial Jobless Claims Preview: Extraordinary normality

Overall, the cold winds from everywhere could send pound/dollar further down.

GBP/USD Technical Analysis 

Momentum on the four-hour chart has turned negative and GBP/USD dropped below the 50 and 200 Simple Moving Averages – both bearish signs. It is still trading above the 100 SMA. 

Support awaits at 1.29, which was a support line in early October and late September, followed by 1.2865, the weekly low. Further down, 1.28 is a strong line after separating ranges around the same time.

Resistance is at 1.2975, which was a swing high last week, followed by 1.3005, another peak. The upside target is 1.3080, October's high.

See 2020 Elections: How stocks, gold, dollar could move in four scenarios, nightmare one included

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