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British Pound: USD/GBP (GBP=X) Some Sterling Softness

British Pound: USD/GBP (GBP=X) Some Sterling Softness

Currency market action yesterday saw sterling adopt a marginally softer tone. Confusion surrounding the UK’s proposed exit strategy from its current Covid-19 lockdown acted as a headwind for the currency. Brexit news flow may also have been a negative.

Headlines suggest little progress has been made in EU-UK talks.
Meanwhile, the dollar benefitted from a cautious market backdrop.
An acceleration in Covid-19 infections in Germany and South Korea, where virus related restrictions have been gradually lifted, hampered sentiment.

Background noise surrounding ongoing global trade tensions was also unhelpful. In level terms, all of the above is reflected in cable (GBP/USD)
opening this morning down in the lower half of the $1.22-1.23 band. At the same time, EUR/GBP is changing hands just above the midpoint of the 87-88p range, while EUR/USD is operating down close to the $1.08 threshold.

Overall though, the main pairs remain confined to their recent trading ranges.

Elsewhere on financial markets, equities put in a mixed performance yesterday. The Euro Stoxx 50 finished the day down 0.8%, while at the close on Wall Street the S&P 500 was flat. Turning to the day ahead, the April print of US CPI is the only data highlight, with the collapse in oil prices likely to see headline inflation decelerate sharply. However, the release should not impact the dollar. Meantime, a number of Fed speakers are
scheduled to talk, which will be of interest given the recent moves in US rates markets. More generally, sentiment will continue to remain reactive to the latest Covid-19 headlines as has been the case since the crisis began.

FX Forecast

FX Polls

Economic Events

Shayne Heffernan Trade Idea

“Due to the renewed strength in the U.S. Dollar and weakness in European currencies such as the British Pound, I would be prepared to take a bearish bias today if we get a price action reversal at 1.2363, but if the price can get established above that level following a break, the outlook would become a little more bullish.” Shayne Heffernan PhD in Economics

Why This Matters

Britain’s finance ministry fears government borrowing this year could hit a record 337 billion pounds ($414 billion) due to the coronavirus.

Under a worst-case scenario, where the economy does not recover, borrowing could surge to 517 billion pounds compared with a forecast of just 55 billion pounds for 2020-21 as recently as March.

Officials warned ministers that Britain could face a debt crisis if measures were not taken to stabilise borrowing, which would require 25 billion-30 billion pounds of tax rises or spending cuts under the main scenario, and 90 billion pounds in the worst case.

The Telegraph quoted an unnamed finance ministry source as saying the document was “a summary of all the existing levers,” and that no policy decisions had been taken.

The document, which the report said was drawn up for Finance Minister Rishi Sunak, set out a proposed package of tax increases and spending reductions which may have to be announced within weeks to boost investor confidence in the UK economy.

“Timing, pace and composition of any consolidation should be managed carefully to avoid the risk of stifling the economic recovery,” the document said.

Finance spokesperson for Britain’s opposition Labour Party Anneliese Dodds said both the finance minister and the prime minister must urgently make a statement rejecting the plans stated in the document that propose spending cuts after the coronavirus crisis.

Measures could include increasing income tax or value-added tax, ending a system of pension increases known as the “triple lock,” and freezing public sector pay, the report, citing the document, said.

“To raise fiscally significant amounts, we would either have to increase rates/thresholds in one of the broad-based taxes or reform one of the biggest tax reliefs (eg. pensions tax),” the document said.

In the best-case scenario, a so-called V-shaped recovery, the budget deficit was projected at 209 billion pounds. But the document said this was optimistic, and a more realistic scenario was a “prolonged recovery and some permanent damage to the economy” – a U-shaped recovery.

In the latter case, the deficit would fall to 83 billion pounds in 2021-22 and drop to 32 billion pounds by 2024-25, the report said.

Scenarios published last week by the Bank of England and in April by the government’s Office for Budget Responsibility both pencilled in fairly rapid rebounds for the British economy, assuming COVID-19 restrictions are lifted soon.

Technical Indicators

Overall, the bias in prices is: Downwards.

The projected upper bound is: 1.27.

The projected lower bound is: 1.19.

The projected closing price is: 1.23.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 4 white candles and 6 black candles for a net of 2 black candles. During the past 50 bars, there have been 25 white candles and 25 black candles.

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 Indicators

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.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 14.5930. This is an oversold reading. However, a signal is not generated until the Oscillator crosses above 20 The last signal was a buy 3 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 42.56. 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 36 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 -146.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a sell 8 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 5 period(s) ago.

Rex Takasugi – TD Profile

FOREX GBP= closed up 0.001 at 1.227. Volume was 79% below average (consolidating) and Bollinger Bands were 53% narrower than normal.

Open     High      Low       Close        Volume
1.226    1.227     1.225     1.227        24,766
Technical Outlook
Short Term:         Oversold
Intermediate Term:  Bearish
Long Term:          Bearish
Moving Averages: 10-period        50-period         200-period
Close:           1.24             1.24              1.27
Volatility:      10               21                14
Volume:          111,120          129,047           113,092

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.

Summary

FOREX GBP= is currently 3.1% 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 0 periods.

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