GBP/USD to struggle amid a UK lockdown scare

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GBP/USD has been struggling to post a meaningful recovery as coronavirus fears take over. Optimism about Brexit talks and uncertainty about the US elections are in play while Friday’s 4-hour chart is pointing to the downside. Overall, there are reasons for the safe-haven dollar to rise and the pound to fall, Yohay Elam, an Analyst at FXStreet, reports.

Key quotes

“A UK lockdown is creeping ahead of Halloween – additional regions have entered Tier Three of restrictions following increases in COVID-19 cases and a full nationwide shuttering cannot be ruled out. For now, PM Boris Johnson is rejecting calls to follow Germany and France with lockdowns but is unclear if he can hold out for much longer. Covid infections are breaking daily records and deaths per population exceed the EU and the US.”

“A ray of hope comes from Brexit talks where no news is good news for sterling. EU and UK negotiators are in Brussels, trying to find more common ground after reportedly making progress on the thorny topic of state aid. Michel Barnier, the bloc’s Chief Negotiator, tends to update the public on talks on Fridays. Will he do that again? Markets are awaiting.” 

“Tension is rising toward the elections in the US, where President Donald Trump continues trailing rival Joe Biden. An influx of national and opinion polls released on Thursday did little to change the overall picture – a lead of between 7-9 on the national level and an 89% chance of winning according to FiveThirtyEight. Nevertheless, many are skeptical about the polls after Trump’s 2016 surprising victory in 2016. Uncertainty is boosting the safe-haven dollar.” 

“Pound/dollar is suffering from downside momentum on the 4-hour chart and has recently dropped below the 200 Simple Moving Average, after slipping below the 50 and 100 SMAs beforehand. With the Relative Strength Index holding above 30, the cable is outside oversold conditions, leaving it room to fall.”

“Support awaits at 1.2880, Thursday’s low, followed by 1.2860, a double bottom from mid-October. Resistance is at the daily high of 1.2940, followed by 1.2990, which was a low point last week.”

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