GBP/USD Forecast: Bedeviled by Brexit and at risk of falling once the tide turns

August 25, 2020 Off By admin-445
  • GBP/USD has been struggling to capitalize on dollar weakness stemming from optimism. 
  • Brexit is weighing on sterling while US data and coronavirus developments are eyed.
  • Tuesday’s four-hour chart is painting a mixed picture.
  • GBP/USD has everything in its favor – except uncertainty. While the currency pair is rising amid dollar weakness, it is lagging behind peers such as .
    American and Chinese negotiations held a telephone call overnight and announced progress – with more to come. Contrary to the heightened rhetoric of recent weeks, when it comes to trade, the world’s largest economies are aligned. Markets like that, pushing higher and the safe-haven dollar lower.
    President Donald Trump – who bashed China over everything from coronavirus to tech – refrained from reiterating this talking point in the first night of the Republican convention. He will speak again later in the day but may skip the topic again.
    Coronavirus developments have also been positive, with England and Wales reporting the lowest number of COVID-19 deaths in 21 weeks. When it comes to cases, the UK is also doing better than many peers – large European countries are seeing increasing infection rates.

    Hopes for a vaccine to the disease that is gripping the world are also high – Pfizer hopes to produce millions of doses before the end of the year. That is only the latest news from the medical front.
    Nevertheless, the latest round of inconclusive Brexit talks last week – and the lack of any progress since then – is weighing on the pound. The clock is ticking toward year-end and investors seem to begin factoring the risk of a no-trade-deal exit – unfavorable for the UK economy.
    The next substantial market move depends on America’s central bank. Jerome Powell, Chairman of the Federal Reserve, will deliver a critical speech on Thursday, laying out a new policy framework. A shift toward allowing higher inflation – which some market participants expect – would mean lower interest rates for longer and a weaker dollar.
    In the meantime, the Conference Board’s Consumer Confidence gauge for August is Tuesday’s highlight. It is set to be similar to July.
    Overall, several positive developments should have resulted in a significantly stronger pound, and its failure to rise opens the door to falls once the tide turns in favor of the dollar.
    GBP/USD Technical Analysis

    Pound/dollar is still suffering from downside momentum on the four-hour chart, albeit weaker than beforehand. The currency pair is struggling to cross the 100 Simple Moving Average after failing to break over the 50 SMA. On the other hand, it is trading above the 200 SMA.
    Support awaits at 1.3055, the daily low, followed by 1.3005, a triple bottom. The next lines are 1.2950 and 1.2905.
    Resistance is at 1.3155, the weekly high, followed by 1.3185, which was a peak in early August. Last week’s high of 1.3265 is the next level to watch.