|

GBP/USD Forecast: Turning a corner on coronavirus? Bulls are still not out of the woods

  • GBP/USD is trading at lower ground amid several global concerns.
  • Hopes for a coronavirus cure are insufficient to boost sterling. 
  • Wednesday's four-hour chart is painting a balanced picture.

"Dexamethasone helps us to turn the corner against the coronavirus" – the words of Matt Hancock, the UK's Health Secretary, seem premature. The cheap steroid drug has shown to reduce mortality from COVID-19 by up to a third according to a broad randomized controlled study conducted by the University of Oxford. That is undoubtedly good news. 

However, GBP/USD has other issues to grapple with. 

First, the UK's coronavirus curve is moving down – yet frustratingly slowly. The government is loosening the lockdown at a snail's pace in comparison to its peers at the continent and demands a 14-day quarantine on incoming visitors– all but killing the tourism sector. 

European colleagues are also at odds with Britain on Brexit. Despite Prime Minister Boris Johnson's optimism about accelerating talks – or "putting the tiger in the tank" in his words – talks may drag on for longer. According to a report in Germany, negotiations will only heat up after the summer.

That would brink the UK closer to the brink of the transition period that expires at year-end – raising the risk of falling to World Trade Organization terms in 2021.

UK inflation extended its fall, hitting 0.5% yearly in May. While this statistic met expectations, it is another sign of coronavirus' carnage to the economy, after jobless claims leaped more than predicted last month. 

The Bank of England announced its decision on Thursday and will likely expand its bond-buying scheme – boosting the pound, depending on the size. However, Governor Andrew Bailey's openness to negative rates may weigh on sentiment. 

See Bank of England Preview: Bailey may boost pound by going big on bond-buying, beware negative rates

GBP/USD is also battling dollar strength, stemming from safe-haven flows. The increase in COVID-19 cases in the US Sn Belt and Beijing is causing concerns. China is also involved in a border clash with India in the remote Galwan valley up in the Himalayas. Efforts to de-escalate are underway and could weaken the safe-haven dollar. 

Another geopolitical conflict involving nuclear weapons is in the Korean peninsula, where both Pyongyang and Seoul have heightened their rhetoric after the North's bombing of a liaison office on the border. High tensions keep the dollar bid in this case. 

Jerome Powell, Chairman of the Federal Reserve, testifies later in the day on Capitol Hill and will probably remain cautious. He seemed encouraged by robust retail sales figures – jumping 17.7% in May, double the expectations – but said a full recovery depends on dealing with the health issue.

Overall, there is more room to the downside for pound/dollar than to the upside. 

GBP/USD Technical Analysis

The currency pair bounced off the 100 Simple Moving Average on the four-hour chart but failed to conquer the 50 SMA. Momentum and the Relative Strength Index are both balanced. All in all, the picture is mixed.

Support awaits at 1.540, the daily and where the 100 SMA hits the price. It is followed by 1.25, a support line from early June, and then by 1.2450, the weekly low. 1.24 and 1.2360 are next. 

Resistance awaits at 1.615, a swing low from last week, followed by a weekly peak of 1.2680. Further up, 1.2735 and 1.2755 await GBP/USD.

Author

Yohay Elam

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.

More from Yohay Elam
Share:

Editor's Picks

GBP/USD bounces off lows, back above 1.3200

After bottoming out near 1.3160, GBP/USD manages to regain a bit of shine and reclaim the 1.3200 mark and beyond at the end of the week. Stronger-than-expected UK Retail Sales data seem to be helping the British Pound limit its losses, while the chaotic UK political environment keeps the bulls at bay for now.

EUR/USD looks consolidative around 1.1460

EUR/USD stages a modest rebound after slipping to a three-month low below 1.1420 at the end of the week. That said, the pair now looks to consolidate humble gains just above 1.1460 despite growing uncertainty surrounding the next round of US-Iran negotiations, which keeps the US Dollar’s downside contained.

Gold slips back to six-day lows, targets $4,100

Gold retreats for the third consecutive day on Friday, eroding gains seen in the first half of the week and approaching the key $4,100 mark per troy ounce. Indeed, the precious metal continues to face headwinds from the Fed's hawkish stance and renewed uncertainty surrounding the next round of US-Iran negotiations.

Solana extends correction despite ETF inflows, RWA adoption

Solana (SOL) price edges below $70 extending its losses for the fourth straight day this week. The institutional demand for Solana is building, with steady inflows so far this week and Morgan Stanley’s amended S-1 filing for a Solana-focused Exchange-Traded Fund.

The Iran war didn't break the US economy, but what happens next?

Nearly four months after the start of the Iran war, the US economy remains remarkably resilient. While the conflict initially triggered a severe disruption to global energy markets and a sharp rise in Oil prices, recent diplomatic progress between Washington and Tehran has eased concerns about a prolonged supply shock.

Regime change: Inside Kevin Warsh's first move to make the Fed unreadable on purpose

The rate did not move. That was the least interesting thing about Kevin Warsh's first meeting in charge of the Fed. The FOMC held its benchmark at 3.50%-3.75% for the fourth straight meeting, exactly as priced, and then the new chair used his first press conference to dismantle the machinery the market has leaned on for a decade.