GBP/USD: More odds for breaking 1.3700

GBP/USD: More odds for breaking 1.3700

  • GBP/USD is in downside correction within a broader uptrend.  
  • Stronger US Dollar and rising Corona cases in the UK are keeping the pair under pressure.  
  • Any delay in lifting lockdown restrictions will further weigh on the pound.  

The GBP/USD resumed its decline on Thursday, in contrast to the European currency, which rose slightly during the day. However, in general, both pairs are now in a downward direction.

It has long been clear and understandable that the American economy is growing faster than the British and European economies.  Also, everyone understands why it is growing so quickly.

The national debt in the United States has already swelled to $30 trillion, and inflation has already risen to 5%.  At the same time, the labor market has not yet recovered to the required, pre-pandemic levels. So, the Fed cannot yet use weapons against rising consumer prices. Hence, inflation may continue to grow in 2021.

In this way,  fundamental grounds for further growth of the US Dollar look very doubtful.  But here, as often happens in the last 5 years, the British Pound can come to the rescue of the dollar.

Even though the UK is one of the leaders in the world in terms of the rate of vaccinated population, it is now also the leader in the number of new cases of the disease.  Thus, the pound sterling may come under additional pressure, as the current incidence rates are already exceeding the January values.

The maximum number of new cases registered per day at the peak of the third, most powerful “wave” was 68k.  Yesterday, 32k cases were recorded in the UK. At the same time, Boris Johnson will lift all quarantine restrictions in the country on July 19, and 100% of fans are allowed to the final matches of UEFA EURO 2020.  Somewhere in Edinburgh, Nicola Sturgeon rubs his hands together, already realizing  that the British Prime Minister’s actions give her additional trump cards in her confrontation with London.

Representatives of the Labor Party probably adhere to about the same opinion.  Of course, Johnson may still postpone the lifting of all quarantine restrictions on July 12, when the British Parliament will just make the final decision on this issue.

Everything here will depend on the foresight of the British Prime Minister.  It’s not a secret for anyone that the pandemic played into Johnson’s hands in a certain sense of the word.  Of course, it put additional pressure on the British economy, but at the same time, it made it possible to mask all the negative consequences of Brexit and explain them as a pandemic.

It is very difficult to understand which failures, collapses and falls of economic sectors are associated with Brexit and a pandemic.  But,  even now, it cannot be said that Britain has embarked on the path of recovery, and nothing will ever push it off it.

GBP/USD technical forecast: More downside on cards.

From a technical point of view, everything is quite logical since an uptrend is clearly visible on the daily timeframe (or higher), which has been going on for a year and a half. Therefore, corrections are needed from time to time. So why not now? So why don’t the corrections take place in several waves? Thus, we still assume that the GBP/USD will continue to fall in the area of “‹”‹1.3600 – 1.3666. In principle, there are only about 100 points left to go to this area.

Daily chart of EUR/USD
Daily chart of EUR/USD

Support levels:

S1 – 1.3733

S2 – 1.3672

S3 – 1.3611

Resistance levels:

R1 – 1.3794

R2 – 1.3855

R3 – 1.3916

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Saqib Iqbal

Saqib Iqbal

Saqib Iqbal is a market analyst, prop fund trader and mentor, serving the industry with his analysis and educational content since 2011. The author has great exposure to different financial markets and institutions. He's well-known for his day trading reviews and multiple timeframe analysis.