GBP/USD Forecast: Will Boris' boost lift the pound? Five reasons to doubt it as the pair trends down

GBP/USD has been trying to recover as markets stabilize and PM Johnson promises stimulus.
Coronavirus concerns, Brexit, and pricing in of the plan may trigger another fall.
Monday's four-hour chart is pointing to the downside.

Yohay Elam FXStreet

Another Boris boost? Markets expected a boost in investment after the late 2019 elections – which ended in a landslide victory for the Conservatives. And then came coronavirus. Will the pound rise as Prime Minister Boris Johnson promises fiscal stimulus?

Johnson has said on Monday that he will double down on investment on infrastructure, technology, and education ahead of a more detailed speech on Tuesday. The PM – well-versed in history – channeled Franklin Delano Roosevelt's New Deal. The US President's program helped pull America out of the Great Depression.

GBP/USD is rising amid prospects of a considerable boost to the economy and amid a tad of dollar weakness – as markets stabilize after Friday's sell-off and the safe-haven greenback loses some of its appeals.

However, there are reasons to doubt this will last:

Five reasons to remain bearish on GBP/USD

1) Fiscal hopes already in the price: Johnson's Conservative Party is not David Cameron's nor Margareth Thatcher's. After years of post-crisis austerity, the Tories shifted toward wooing northern voters and had previously promised to spend. More specifically, Johnson is a fan of pompous infrastructure projects from his days as Mayor of London, so that is no surprise either.

2) Brexit: The fifth round of talks between the EU and the UK kicks off on Monday, and this time they are labeled as "intense." However, recent comments have not suggested any breakthrough is likely. Will face-to-face talks make a difference? It is the first time that happens and Johnson said "the tiger is in the tank", but doubts are in place given recent past experience.

3) Coronavirus in the UK: While the COVID-19 curve is falling, Britain's reopening remains slow and the elevated number of deaths in comparison to European peers remains worrying. Moreover, a potential flare-up in Leicester is also worrying.

4) Coronavirus in the US: While markets seem calmer on Monday, America is struggling to contain the illness. Arizona and Georgia reported record infections over the weekend, the positive test rate in Texas remains elevated and California announced new restrictions. New figures from the US may dampen the mood.

5) Clear downtrend

GBP/USD is trading under the 50, 100, and 200 Simple Moving Averages on the four-hour chart, and momentum remains to the downside. The Relative Strength Index is above 30, thus outside oversold conditions. Moreover, any recovery attempt may be capped by the downtrend resistance line that has been looming over cable since mid-June.

Overall, bears remain in control.

Support awaits at 1.2340, a support line from two weeks ago, followed by 1.2315, Friday's low. The next level to watch is 1.2250.

Resistance is at 1.24, a round number that also provided support in mid-June. It is followed by 1.2465, a swing high from last week, and then by 1.25, another round number. Further above, 1.2550 and 1.2620 await GBP/USD.

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.

EUR/USD holds losses below 1.1850 ahead of FOMC Minutes

EUR/USD stays on the back foot below 1.1850 in the European session on Wednesday, pressured by renewed US Dollar demand and reports that ECB President Lagarde will step down before the end of her term. Traders now look forward to the Minutes of the Fed's January monetary policy meeting for fresh signals on future rate cuts.

GBP/USD defends 1.3550 after UK inflation data

GBP/USD is holding above 1.3550 in Wednesday's European morning, little changed following the UK Consumer Price Index (CPI) data release. The UK inflation eased as expected in January, reaffirming bets for a March BoE interest rate cut, especially after Tuesday's weak employment report.

Gold retains bullish bias amid Fed rate cut bets, ahead of Fed Minutes

Gold sticks to modest intraday gains through the early European session, reversing a major part of the previous day's heavy losses of more than 2%, to the $4,843-4,842 region or a nearly two-week low. That said, the fundamental backdrop warrants caution for bulls ahead of the FOMC Minutes, which will look for more cues about the US Federal Reserve's rate-cut path.

Pi Network rally defies market pressure ahead of its first anniversary

Pi Network is trading above $0.1900 at press time on Wednesday, extending the weekly gains by nearly 8% so far. The steady recovery is supported by a short-term pause in mainnet migration, which reduces pressure on the PI token supply for Centralized Exchanges. The technical outlook focuses on the $0.1919 resistance as bullish momentum increases.

Mixed UK inflation data no gamechanger for the Bank of England

Food inflation plunged in January, but service sector price pressure is proving stickier. We continue to expect Bank of England rate cuts in March and June. The latest UK inflation read is a mixed bag for the Bank of England, but we doubt it drastically changes the odds of a March rate cut.

Top 3 Price Prediction: Bitcoin, Ethereum, and Ripple face downside risk as bears regain control

Bitcoin, Ethereum, and Ripple remain under pressure on Wednesday, with the broader trend still sideways. BTC is edging below $68,000, nearing the lower consolidating boundary, while ETH and XRP also declined slightly, approaching their key supports.