Last week the careful attention of forex traders was drawn to the GBP/USD currency pair.
The combination of unexpectedly high unemployment rates release and the Bank of England governor Bailey’s speech did not manage to push the currency below the strong 1.200 support level last week. Yet, it put it in quite a tight corner. Whether British Pound can gain a foothold in 1.216-1.265 range, remains one of the most exciting battles to observe this week.
This spring the U.S. government managed the situation with coronavirus pandemic and the following deep retracement of the S&P 500 index by turning on the money-printers and lowering the interest rates to barely noticeable 0.25%. The Federal Reserve made it clear that the above measures were necessary for the U.S. economy, and they will keep flooding the world with cheap dollars as long as it’s needed to survive through the business lockdown.
For the U.K., the coronavirus pandemic, along with the Brexit agreements uncertainty, endures the deepest recession that Britain has faced in centuries. Unlike the U.S. dollar, the British Pound is no longer considered reliable enough for cash-exits of investors all over the world.
On March 16, Andrew Bailey became the Governor of the Bank of England. Then he was very skeptical about the rumors claiming the BoE might need to lower interest rates to the unprecedented negative numbers to save the economy. On Friday, May 22, in the new Bailey’s speech, the question was raised again.
Last week’s British unemployment stats demonstrated 856.5 thousand of new claims, which is 180 thousand above expected numbers. At the same time, the country faced an above 20% decrease in retail sales volumes in April. These numbers were likely driven by the highest coronavirus-related death toll in Britain compared to other European countries. The COVID-19 lockdown of business hit Britain harder than it was expected in March.
On Friday, BoE governor Bailey has again turned to the negative interest rates rhetorics, as this measure could potentially boost the business and sales in the country.
The above news background makes forex market fundamental GBP/USD forecast negative for this currency pair. Yet, the reasons lying beneath such economic releases are highly controversial and unstable. While part of the world’s population is continuing to observe the quarantine, some experts estimate the financial risks of this practice to exceed the medical risks.
Pharmaceutical companies’ stocks were always known to be highly volatile due to the rapid changes in the industry that can produce giant gaps in stocks’ value. This spring, all the world indices and forex market as well are driven by the same factors, which brought the overall volatility closer to the numbers that were previously intrinsic to the pharmaceutical industry only. The situation can change overnight, which is why this is important to pay attention to technical analysis. The price chart is the best indicator that can reflect the truth faster than any world-known financial expert.
The March GBPUSD drop to unbelievable 1.14 was stopped by no less impressive volumes, which indicate strong buyers are present at that level. Currently, the currency moves in the range of 1.21-1.26. The Friday consolidation on the lower bottom of the range increases the chances the price can be pushed further down to continue the downtrend driven by the negative fundamentals. Yet, if uncertainty continues, the price is very likely to return in the range from the current numbers or after testing the support at 1.20. In this case, the nearest resistance is expected at 1.26. The second strong resistance is 1.36, which is another challenge for the British Pound to overcome from the technical analysis perspective.
Lana Chupryna on May 25, 2020
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