Currency Pair of the Week: GBP/USD

This could be a volatile week for GBP/USD!

FOREX 9

There are many factors that could influence the near-term price action of GBP/USD this week.  The Coronavirus continues to spread throughout the US and there has been a recent surge in new cases throughout the UK as well.  The US ranks first in coronavirus related deaths while the UK ranks fourth, as Mexico just moved ahead of them.  Re-closings have replaced re-openings in many cities and states in the US.  The UK has also seen localized lockdowns in parts of Manchester, Lancaster and Yorkshire as transmission rates increase. US congress seems to be far apart on agreeing to a new financial aid package, with emergency unemployment benefits expiring on July 31st.  UK/EU Brexit deal talks have stalled and are expected to resume later this month.  In addition, the US and the UK are working on a trade deal with each other.  A meeting is planned for this week. 

Last week, the FOMC stated that “The path of the economy will depend on the course of the virus.”  This phrase was new to the FOMC statement and echoes the thinking of most global central banks.  Thursday, the Bank of England (BOE) with meet and must address the same issue.  Current rates are at 0.10%, and expectations are for unchanged.  There has been some talk recently from BOE officials regarding negative interest rates, however this will most likely be on hold for the current meeting.  It will, however, be important to watch for any type of language related to negative interest rates.

Technically, the US Dollar (DXY) has been in a free fall for the last month.  On Thursday, DXY closed decisively below a trendline dating back to May 2011 (green line).  On Friday however, price reversed with a bullish engulfing candle and is hovering near the important trendline today.    The direction of DXY will be closely monitored by traders around this important, long-term trendline.

Source: Tradingview, City Index

GBP/USD has been on a strong move of its own over the last month, however this may have been primarily due to US Dollar weakness.  On Friday, the pair put in a shooting star, which is a one candle reversal formation,  with an RSI reading near 80.  The extreme value in the RSI would indicate that it may be time for a reversal or pullback before resuming higher. 

Source: Tradingview, City Index

On a 240-minute time frame, GBP/USD broke lower out of a rising channel dating back to July 20th and now acts as first resistance near 1.3070.  Daily resistance crosses at Friday’s highs near 1.3170, then the March 9th high at 1.3200.  First support comes in at the 38.2% Fibonacci retracement level from the July 14th lows to Friday’s highs, near 1.2906.  Below there, support crosses at the 50% retracement level near 1.2850 and then the 61.8% Fibonacci retracement level and horizontal support near 1.2480.

Source: Tradingview, City Index

This could be a volatile week for GBP/USD if coronavirus cases continue to rise in the UK and/or the US.  In addition, there may be squaring up of positions ahead of the BOE meeting on Thursday.  Also watch the DXY for possible clues into the near-term direction of GBP/USD.


Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.

Important Notice:

Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.