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GBP/USD Consolidates After A Sharp Two-Week Drop

Jignesh Davda

The UK has put forth a strong effort to contain the Coronavirus in terms of rate cuts and fiscal stimulus easing. Nevertheless, the British pound has been under relentless pressure, falling from a high of 1.3200 earlier this month to multi-decade lows near 1.1500.

The NHS sent a letter out to Prime Minister Boris Johnson, pleading to increase supplies to help deal with the Coronavirus. Reuters reported today that the UK is now using the military to help deliver supplies to healthcare workers to ensure they are well equipped.

Speaking to Sky News, Health Secretary Matt Hancock said they are prepared to increase restrictions on the movements of British citizens if they find people are not complying with their requests for social distancing. He added that PM Johnson was discussing further measures and may reveal additional restrictions soon.

The G20 meets today and will discuss the economic impacts the Coronavirus is expected to have. Aside from the meeting, there aren’t any other data releases that stand to have an impact on the exchange rate.

Survey data from purchase managers in the UK manufacturing and services industries will be released tomorrow. This data tends to often accompany a reaction in GBP/USD.

Technical Analysis

GBPUSD Hourly Chart

After a sharp drop in the pound to dollar exchange rate, it is not surprising to see a bit of consolidation.

Late last week, a recovery attempt was stopped short just after crossing the 1.1900 handle, ahead of the major psychological resistance at 1.2000.

A horizontal level at 1.1472 has offered strong support over the past few session and remains a key level to the downside.

For the session ahead, resistance is seen 1.1712 as the level served to cap a rally on Thursday and then once again earlier today.

GBP/USD traders should keep a close eye on the US dollar index (DXY) which is dangerously close to a breakout. The dollar index is near the 103.00 level which served to trigger a notable turn lower in 2017. A break above it signals a technical breakout that stands to accompany an acceleration in dollar buying.

Bottom line

  • The downside pressure in GBP/USD has subsided at the moment, after a sharp roughly 10% drop in the exchange rate over the past two weeks.
  • A break through 1.1472 would signal a bearish continuation.

This article was originally posted on FX Empire

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