GBP/USD Forecast: Three reasons to expect sterling to stumble

GBP/USD has been on the back foot amid concerns that the UK reopening is delayed.
Friction around Brexit is also pressuring the pound.
Cable has lost two SMAs on the four-hour chart, adding to the bearish sentiment.

Yohay Elam FXStreet

Cable is at the crossroads – where will it go from here? After several sluggish sessions of range trading, there are three reasons to expect a slide in GBP/USD.

1) Freedom Day, postponed?

Concerns about the Delta variant of COVID-19 have been mounting for several weeks. This strain, first identified in India, is thought to be 40% more transmissible than the already fast-spreading Alpha, or Kent variant. Moreover, according to new studies, it may cause a wider variety of symptoms.

Prime Minister Boris Johnson insisted that the fourth and last stage of Britain's reopening is on course to proceed on June 21, but sounded more cautious in his most recent remarks. He was probably working on a Plan B. According to the Times, the government is mulling a delay of two weeks in the reopening, using the extra time to vaccinate as many people as possible.

The UK is well-advanced in its immunization effort and is now calling 25 to 29-year-olds to get inoculated. While two weeks is far from dealing a deadly blow to Britain's economic recovery, it risks turning into a larger setback.

2) Brexit is back

The UK officially left the EU in early 2020 and the transition period ended early this year, but leftovers linger. The most contentious topic remains trade around Northern Ireland and the implementation of the trade protocol.

London seems to refuse to acknowledge it accepted a customs border between Great Britain and NI, extending the period without checks. However, Brussels is becoming furious. Maroš Šefčovič, the bloc's Brexit commissioner, wrote that "If the UK takes further unilateral action … the EU will not be shy in reacting swiftly, firmly and resolutely to ensure that the UK abides by its international law obligations"

This acrimony not only risks minuscule trade around the territory but further agreements between the EU and the UK on the regulations regarding the services industry. For sterling, the mere reappearance of Brexit is problematic and weighs on the currency.

What about developments in America? The disappointing Nonfarm Payrolls figures and Treasury Secretary Janet Yellen's upbeat comments on interest rates seem to have offset each other. While Tuesday's JOLTs job openings report is of interest, the main event of the week – inflation data – is only on Thursday, leaving the focus for GBP/USD on British events.

3) Technicals leaning lower

When a currency pair trades in a limited range, it is hard to find substantial trends. Nevertheless, the four-hour chart consists of clues that the next move is down. GBP/USD slipped below the 50 and 100 simple moving averages and momentum has slipped lower.

Support awaits at 1.1.4110, which provided support on Friday. The next cushion is 1.4080, which is June low. It is followed by 1.4050 and 1.4010.

Resistance awaits at 1.42, which held GBP/USD down in early June, and then 1.4220, a cap from late May, ahead of the 2021 peak of 1.4250.

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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