Weekly recap: Pound to grow on the back of US economic uncertainty

This week has generally been of little volatility for the GBP/USD pair despite some important economic data releases, which looked like traders accumulating volumes for a move out of this sideways trend. The coming week must indicate where the pair will go next.

UK Economic Stats Keeping Bulls’ Hopes High

As for this week’s economic data, it has been a solid prop-up for sterling and added to the technical positivity in letting it capitalise on its wins. The major good readings have been the UK’s unemployment rate and preliminary GDP for Q2. The unemployment rate has stayed at 3.9% against expected 4.2%, the GDP has contracted by 21.7% against 22.4% expected by market analysts. The industrial and manufacturing readings have also been a notch above the expectations adding to the overall economic positivity. The UK GDP stats for Q2 alone compared to the 32.9% US GDP contraction in the second quarter have been a considerable contribution to sterling’s moderate gains against the greenback this week.

The overall robustness of the UK economy demonstrated amid the global financial turmoil may be enough to keep up the market’s confidence in sterling. This looks even more promising, considering the contrastive coronavirus conditions in the UK and the US: there are still well over 40,000 new cases daily in the US, while in the UK the figure has been below 1,500 since mid-June.  Thus, Boris Johnson aims to open schools in September while no US state has yet set a date for reopening them in 2020.

Technical Perspective

With little volatility in place for the pound, this week has been a straightforward resistance-to-support technical trading. The large resistance being reached, many long positions have closed

Having reached the major resistance level at 1.3127 the previous week, GBP/USD continued its sideways course this week.  This week’s high for GBP/USD has been at 1.3141 with the 1.3127 resistance being reached three times. During this week, the pair moved up from 1.3050 to above 1.3090 at the end of Friday’s trading session. The sideways channel formed between 1.3023 and 1.3161 has been preserved.

Cable has been fluctuating around the 20 and 50 periods’ moving averages throughout the week, finishing between the two slightly below 1.3090. There was another attempt on Friday at testing the 1.3127 resistance, which eventually left it intact. 

Pound to Grow on the Back of US Economic Uncertainty

The coronavirus situation in the UK and the US will continue to weigh on the GBP/USD trading pair for as long as a radical solution against COVID-19 is not found and hundreds and thousands of new COVID-19 cases are registered daily.

Yet in the United States, the second COVID-19 aid package talks seem in a deadlock for the rest of August as Democratic and Republican negotiators from the two chambers of the Congress refuse to compromise. The Democratic House of Representative Speaker Nancy Pelosi and Democratic Senate leader Chuck Schumer said in a joint statement, ‘The White House is not budging.’ To this, Trump responded that the Democrats ‘are holding the American people hostage.’ Both parties’ negotiators have a vast range of discrepancies, regarding the size and methodology of distribution of the second coronavirus aid package.

With the Congress not in session until the second week of September, any progress in the negotiations is suspended until that time. This means that with the weekly $600 unemployment benefit over on July 31 there is no governmental help coming for jobless Americans until mid-September. This also puts American schools on the line because they were awaiting the government’s financial help to be able to provide adequate health and safety measures when reopening for the new academic year.

As it stands today all of the above  will likely  reflect on the dollar in a negative way thus become an additional growth factor for the pound against it. With GBP/USD trading near the 1.3127 resistance and sizeable bullish sentiment, a break through this resistance is highly probable in the near future.