British Pound: USD/GBP (GBP=X) on back foot last week
Sterling was the main mover on currency markets last week, reflecting the re-emergence of Brexit uncertainty. On Friday it was confirmed by both the EU and UK that little progress was made in the latest talks. Earlier in the week, uncertainty surrounding the UK’s proposed Covid-19 lockdown exit plan acted as a headwind.
Elsewhere, the dollar was supported for much of last week by about of risk aversion. Concerns over the economic fallout from Covid-19, including the possibility of a prolonged downturn were negatives for sentiment. A flare-up in US-China tensions was also an unhelpful development. Equities lost ground as a result, with the main US and European indices falling by 2-5% on the week.
In level terms, all of the above is reflected in EUR/GBP trading this morning above 89p, up close to the midpoint of the 89-90p band. At the same time, cable (GBP/USD) is operating down near the $1.21 threshold, having opened last week above the $1.24 level. Meanwhile, the slightly firmer dollar tone sees EUR/USD operating down near the $1.08 handle.
This week, the flash PMIs for May in the Eurozone, the US and the UK will attract significant attention. It is envisaged that the gradual easing of restrictions will see the indices move off their lows, suggesting the worst of the downturn may be behind us. This could provide some support for sentiment.
A busy UK schedule also includes the Q1 labour market bulletin and retail sales figures for April. The data will provide further evidence on the damage the virus is wreaking on the economy. However, sterling reaction to the releases may be limited, with markets already expecting a sharp contraction in Q2.
Shayne Heffernan Trade Idea
“At this point, GBP/USD gained significant downside momentum and has already breached the minor support level at 1.2115. If the downside momentum intensifies, the pair may get to 1.2000 in the following trading sessions, although such a move could require additional downside catalysts.
On the upside, the previous support at 1.2170 became the new resistance level for GBP/USD. The pair may find it hard to immediately return back above this level since it has gained material downside momentum.
In case GBP/USD settles above 1.2170, it will try to get to the next important resistance level at 1.2250. I’d note that RSI shows that GBP/USD is not extremely oversold, so the downside momentum could continue.” Shayne Heffernan PhD in Economics
Why This Matters
GBP/USD breached the support level at 1.2170, gained downside momentum and settled closer to 1.2100 as the prospect of negative interest rates put pressure on the British pound.
The Bank of England is evaluating unconventional methods of supporting the economy at times of coronavirus crisis and it can introduce negative interest rates.
Previously, the U.S. Federal Reserve stated that it will not adopt negative rates, so a prospect of negative interest rates in UK puts significant pressure on pound’s dynamics against the U.S. dollar.
The interest rate news are the main driver behind the recent move in GBP/USD. The U.S. dollar is flat against a broad basket of currencies, and the U.S. Dollar Index stays above the 100 level.
The U.S. Dollar Index remains in a range between the 99 level and the 101 level, and a move out of this range will lead to increased momentum. A move above 101 will increase the downside pressure on GBP/USD.
With no important economic releases scheduled for today, GBP/USD trading will depend on technicals and the general market mood. Currently, the market is impacted by the optimism about the reopening of the world economy which is balanced by fears of a second coronavirus wave.
Overall, the bias in prices is: Downwards.
By the way, prices are vulnerable to a correction towards 1.24.
The projected upper bound is: 1.26.
The projected lower bound is: 1.18.
The projected closing price is: 1.22.
A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 3 white candles and 7 black candles for a net of 4 black candles. During the past 50 bars, there have been 22 white candles and 28 black candles for a net of 6 black candles.
A long upper shadow occurred. This is typically a bearish signal (particularly when it occurs near a high price level, at resistance level, or when the security is overbought).
A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 26.1589. This is not an overbought or oversold reading. The last signal was a buy 0 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 41.01. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 40 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -87. This is not a topping or bottoming area. The last signal was a buy 0 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 9 period(s) ago.
Rex Takasugi – TD Profile
FOREX GBP= closed unchanged at 1.219. Volume was 81% below average (consolidating) and Bollinger Bands were 34% narrower than normal.
Open High Low Close Volume 1.219 1.222 1.218 1.219 22,961
Technical Outlook Short Term: Neutral Intermediate Term: Bearish Long Term: Bearish
Moving Averages: 10-period 50-period 200-period Close: 1.23 1.23 1.27 Volatility: 10 20 14 Volume: 116,211 129,075 113,334
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
FOREX GBP= is currently 3.7% below its 200-period moving average and is in an downward trend. Volatility is low as compared to the average volatility over the last 10 periods.
Our volume indicators reflect volume flowing into and out of GBP= at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on GBP= and have had this outlook for the last 4 periods.
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