GBP/USD – To Remain Under Pressure? UK Economy Reboot

Essential Insights:

• GBP/USD has experienced heavy selling pressure breaking, below the rising wedge discussed on our previous analysis (29^th March 2020).
• Generally stronger dollar being observed.
• Boris Johnson announces plans to reboot the economy.

Technical:

GBP/USD has fallen sharply, breaking below the wedge analysis shown on the 29^th March 2020, GBP/USD daily update.

Currently the 8-day EMA (Blue line) and 20-day EMA (Purple line) on the 2-hour timeframe, have crossed to the downslide, indicating further bearish momentum to come.

Prices have broken below a key intraday support zone at approximately 1.23600. There is potential for prices to retrace and retest this level before falling lower to the key monthly support at 1.22900

It is important to take into account the dollar index (DXY). The DXY is trading at 100.11 at the time of posting, the index is testing a critical monthly resistance at 100, a rejection here could see bids being lifted on GBP/USD. This is supplemented by GBP/USD futures, generally showing a rise in prices.

Fundamental:

Boris Johnson announced over the weekend, plans to kickstart the UK economy, a decision in line with many international economies. However, it was emphasized that this ‘kickstart’ would be very slow, in order to mitigate unnecessary COVID-19 cases.

This may come as a disadvantage to GBP strength in the short term, as the currency will be outshone by peers who are rebooting their economies in a more confident manner.

However, on the other hand, the opening of the UK economy is still a positive first step to stabilising the impact Covid-19 has had thus far on the UK economy. Therefore, the variable that will imminently drive most currency is how successful the lockdown exit plans are in the weeks to come. If infections begin to rise again, countries may have to resort to lockdown measures again and currencies are likely to fall as a result.

Moreover, Brexit negotiations have shifted from being in the back-foot to now in the spotlight, third round negotiations with the EU is approaching this month. David Frost, the UK Brexit chief negotiator has issued fresh warnings to the EU’s chief negotiator, Michael Barnier, ahead of this negotiation, citing that Boris Johnson will not be asking for any delays. The risk of a no deal Brexit continues to mount and this may cap any real upside on GBP/USD.