- GBP/USD has fallen toward the four-month lows as US-Sino tensions paint bleaker prospects for global growth.
- Some Conservative candidates reject a no-deal Brexit, but the pound does not respond.
- The technical four-hour chart suggests further falls are on the cards.
The US dollar has stopped worrying about lower yields and resumes its gains – driven by fear rather than greed. The greenback enjoys safe-haven flows as US-Sino tensions are intensifying. China has reportedly halted soy purchases in response to what it calls “economic terrorism.” US secretary of state Mike Pompeo seemed cautious when he said that “the US may or may not reach a deal with China.”
Growing tensions between the world’s largest economies may continue boosting the dollar later in the day but will take a break for the all-important release of US GDP. The revised report for the first quarter is set to show a minor downgrade of growth – from 3.2% to 3.1% annualized. Markets were skeptic about the first publication as the rapid expansion came on top of weak inflation – a worrying sign.
In the UK, the leadership contest heats up as 11 contenders have already thrown their hat into the ring, and several others may join them. And while the membership leans toward a hard Brexit, several high profile candidates such as foreign secretary Jeremy Hunt reject leaving without a deal. Boris Johnson, Hunt’s predecessor, remains the leading candidate.
In any case, Chief EU negotiator Michel Barnier reiterated the EU’s stance – there will be no reneogitation of the Brexit deal – an attempt to open up the deal by a future PM is set to hit a wall.
Labour leader Jeremy Corbyn has finally pledged to back a second referendum on any Brexit deal put to parliament. For enthusiasts of a second referendum, Corbyn’s words may be too little, too late. On the other hand, some Labour MPs and union leaders oppose supporting a second vote – the opposition is torn on Brexit as well.
Overall, political uncertainty is weighing on the pound.
GBP/USD Technical Analysis
GBP/USD is trading below the 50, 100, and 200 Simple Moving Averages on the four-hour chart. Also, downside momentum is growing, and the Relative Strength Index is leaning lower without entering oversold conditions – bears are in full control.
The recent four-month low of 1.2605 is a critical level to watch. The next support line is only at 1.2540 which was a swing low in December. Further down, 1.2445 which was the flash crash low in January.
Cable is battling 1.2640 which capped it in the past few hours. Resistance awaits at 1.2685 that the initial sub-1.2700 low last week. It is followed by 1.2700 that was a swing high and 1.2750 which was the peak of a recovery attempt.