GBP/USD bulls testing a monthly supply zone in the face of adversity

GBP/USD is currently trading at 1.3246 between a range of 1.3094 and 1.3247, higher by 1.10% on the day. 

GBP is taking on the guise of a currency that has been able to rally due to intrinsic values, however, there is more than meets the eye here.

The US dollar has fallen nearly 2% for the month of August as it extends an 8.7% decline made since March of this year. 

The move in the greenback has enabled cable to form a ‘golden cross’ on the charts, yet there are plenty of headwinds for the pound ahead.

When scanning the rest of the market, the pound has, in fact, been one of the worst performers vs the dollar compared to its G10 peers. 

In the coming months UK fundamentals have the potential to offer significant direction for the GBP crosses,

analysts at Rabobank have explained, citing Brexit talks which the seventh round of talks that last until Friday kicked off today.

While Downing St is still of the view that a deal can be thrashed out with the EU, there are serious doubts over whether a deal can be agreed in time.

For a deal to be ratified before the end of the transition period, the EU has indicated that would need to be agreed by October which does not leave very much time.

There remains a substantial amount of ground to be covered with fishing rights and competition rules among the most contentious areas. The EU is also looking for robust guarantees on how it intends to proceed on the area of state aid before signing any free trade deal., 

the analysts at Rabobank explained.

Meanwhile, there are plenty of other headwinds for sterling bulls, including the end of the COVID-19 relief package in October, the 20.4% QoQ contraction in the UK’s Gross Domestic Product, (worst contraction compared to peer nations), risks of deeper recession and additional coronavirus waves or subsequent lockdowns. 

There are also the prospects of negative interest rates in the face of a return to World Trade Organisation trade rules. 

The week ahead

Meanwhile, for the near future, this week’s calendar is a busy one for cable.

We have Consumer Price Index, the FOMC minutes and UK Retail Sales, all of which pose a risk to cable traders. 

However, UK data could well play second fiddle to all that is associated with the US dollar considering fluid geopolitics and a keen focus in US yields and the stock markets.

Golden Cross

The price is testing monthly upside resistance, while the golden cross is considered a bullish confirmation, in a break of the support structure, there  are prospects for a pullback to 1.3150 in the near term.