GBP/USD – Huge Downside Opportunity ?
- GBP/USD retraced after falling over 200 pips on Monday through Tuesday, last week.
- Dollar index rejected from key monthly resistance at 100.
As evident from the daily chart above, price is forming a potential Head and Shoulders pattern, with the right shoulder currently being made. This pattern will not be active until the neckline at around 1.22560 is broken below.
The 4-hour chart illustrates price trading in a rising wedge. Currently price is consolidating between testing the upper resistance trendline of the wedge and rejecting from the 200-day EMA support. A break below the 200-day EMA is likely to see prices falling to the lower trendline support of the wedge.
A breakout to the downside could see the Head and Shoulders pattern activating. However if the dollar index remains below the 100 level, this pair may experience a more consolidative price action.
The UK has been facing high COVID-19 related deaths, topping 20,000 confirmed deaths. It is still not clear when restrictions will be slowly lifted from the lockdown, as the economy continues to suffer.
Elsewhere, the UK is increasingly looking to exit the Brexit transitionary period at the end of December without a deal. UK representatives have said they are working on a sovereign deal with the EU, however, Barnier has already dismissed this idea, citing that the UK is failing to engage substantially in several key areas whilst refusing to extend the deadline to reach a deal.
The UK has also argued that it will not accept some of the terms laid out by the EU, such as measures to prevent UK companies achieving an advantage over European competition.
It is clear both sides are unwilling to move from their negotiating stances, leaving the EU without a deal would spell disaster for UK businesses who have already been hit significantly hard by the impact of covid 19.