GBP/USD: waiting for input

Technicals

The GBP/USD is in a clear consolidation now. Currently trading at 1.2399, it is contained between the support of 1.2350 and the resistance of 1.2455. these levels correspond to the positions of the 50-MA and 200-MA respectively.

The local view presented by the H1 chart gives even a more pressed and flattened picture: the currency pair rides on the back of 200-hour and 50-hour Moving Averages, supported by the 100-hour MA slightly below. Awesome Oscillator is approaching the zero line, same as in the H4 chart.   

That creates a strong impression that the GBP is lying low against the USD as if it was waiting for input to march further. Indeed, there is a lot to wait for.

Fundamentals

First, there is Boris Johnson. Whatever you say, but a country leader means a lot to its people and its economy, even if neither wants to openly recognize that. As cynical as it sounds, that’s not only because of the nation’s compassion. The British Prime Minister is a strong figure which incarnates the entire political and economic direction the US is following. Absence of such figure, particularly now, particularly Boris Johnson, for whatever reasons, would mean a political, economic and power vacuum. That would be utterly disorienting to the UK, to say the least.

Second, there is Brexit. Although the main problem for the Britons is fighting the virus, which applies to most of Europe and the US now, time is ticking. Now, December 2020 is eight months away, and June, which was planned to be the last big milestone in the UK-EU separation process, is right there over the pass. The virus is a true test for the flexibility and resilience of the UK economy – and for the commitment of the country leadership to the Brexit guidelines.

Third, the UK economy was reported to shrank significantly before the crisis hit and the counter-measures were taken. Specifically, the GBD fell 0.1% from January, the trade deficit reached 11.5bln pounds, exports dropped by 11%. Observers fear the British economy may face its darkest times in decades.

Conclusion

There are a lot of factors contributing to the wellbeing of the UK economy and the GBP. It would be wrong to say that GBP has nothing to offer against them, but definitely, there are some truly hard times ahead for the pound. In the short term, watch the levels mentioned being crossed. In the long term, once the virus is done, Brexit will define what happens to the GBP – and that is all within the horizon of just a few months. We will keep you updated.

Author: FBS Analyst Team

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