GBP/USD: Dead cat bounce? Dollar weakness looks insufficient to break downtrend resistance
The pendulum swings again – this time against the dollar, but that may be insufficient for a rally in GBP/USD. Cable climbed above 1.3005, which turns into a double bottom after already having provided support earlier in August.
The greenback gained ground after the completed a massive auction worth $38 billion. Yields advanced before the offering, carrying the dollar higher with it, and then dropped, resuming the medium-term trend.
Other factors weighing on the world’s reserve currency include America’s persistently high coronavirus statistics, the ongoing impasse in Washington over the next fiscal relief package, and uncertainty over the economy’s performance. Weekly jobless claims will provide first figures for the current month and carry cautiously optimistic expectations.
On the other hand, the dollar pendulum could swing back up. China and the US will hold officials talks to take stock of the trade deal – and Beijing is already hinting it has a long list of grievances and that it could move away from the deal.
Cable’s impediments mostly come from the British side. The economy shrank by 20.4% in the second quarter – better than expected but a devastating figure. More importantly, the government is preparing the public for a surge in unemployment.
Rishi Sunak, Chancellor of the Exchequer, has been reiterating that the successful furlough scheme is unsustainable and stated that “many people will lose their jobs.” July’s surge in unemployment claims – 94,400, more than nine times the expectations – serves as a first warning shot.
Overall, pound/dollar’s advance looks like merely a “dead cat bounce.”
GBP/USD Technical Analysis
Cable has bounced off the double-bottom of 1.3005 mentioned earlier and momentum on the four-hour chart has turned positive – but only just. On the other hand, downside resistance – that began last week – is looming over GBP/USD.
Resistance awaits at 1.31, where the downtrend currently hits the price. It is followed by 1.3035 is the next cap after holding pound/dollar down earlier this week and the August peak of 1.3183 is next.
Below 1.3005, the next level to watch is 1.2950, which was a cushion in late July. It is followed by 1.2905 and 1.2845.