GBP/USD Completes 50% Retracement – What’s Next?
Arslan Butt • 2 min read
The previous 3-day winning streak of the GBP/USD ceased, seeing the pair drop from the multi-month high to below the 1.2660 level, mainly due to uncertainty surrounding the Brexit and the intensified UK-China tussle, which exerted downside pressure on the British Pound and contributed to the declines of the pair.
Besides this, the GBP/USD is also being challenged by the coronavirus (COVID19) woes. The broad-based US dollar selling bias, triggered by the risk-on market sentiment became a critical factor in capping further losses for the currency pair. Currently, the GBP/USD is trading at 1.2665, and consolidating in the range between 1.2665 – 1.2740.
Earlier in the day, the Financial Times (FT) reported that UK Prime Minister (PM) Boris Johnson’s government has lost hopes of reaching a trade deal with the US before the American presidential election in November. This statement seems to have weighed on the pound. Despite this, the talks between the UK and the US are going smoothly. This is probably due to the friendly relations between the leaders of Britain and America, coupled with the UK’s latest attack on China. Following this, the US Secretary of State Mike Pompeo showed his willingness to support the Tory government in countering the dragon nation. However, British diplomats have rejected America’s plan to hamper Chinese firms’ attempts to enter the 5G run.
Apart from the UK, the risk-on market sentiment initially got support from the fresh optimism over a potential vaccine for the highly contagious COVID19 virus. Encouraging results from Oxford’s vaccine candidate and the EU leaders’ agreement to the EUR 750 billion Recovery Fund is overshadowing rising tensions between the UK and China and soaring coronavirus infections in California.
Furthermore, the upbeat market sentiment could also be associated with the hopes for a fiscal package in the US, while US Treasury Secretary Steve Mnuchin said that the policymakers are progressing on the Phase 4 stimulus, and a deal is expected by the end of July. The news signaled an expansion in the demand for oil from the world’s largest economy, namely the USA.
On the coronavirus front, the US pandemic numbers are heading quickly towards the 4.0 million mark. Meanwhile the US coronavirus death toll rose by at least 1,003 on Tuesday, to a total of 141,920, logging the largest single-day increase since early June. As a result, experts warned that Arizona, Florida, Idaho, Montana, Oklahoma, South Carolina, Tennessee, Texas, Utah, the Virgin Islands and West Virginia are expected to record the most deaths. Consequently, traders are switching their investments in the US dollar to other safer currencies, hence the dip in demand for the US dollar, which is lending support to the GBP/USD prices.
Daily Support and Resistance
Pivot Point 1.2716
The GBP/USD prices have completed a 50% Fibonacci retracement at the 1.2644 level, and closing of candles above this level have driven bullish bias in the market. On the higher side, the Sterling is going after the next resistance level of 1.2747. The bullish crossover above 50 periods EMA is suggesting odds of further bullish trends in the market. Let’s consider staying bullish over the 1.2715 level today. Good luck!