Advertisement
Advertisement

GBP/USD Breaks Higher as BoE Stands Ready to Finance Government

By:
Jignesh Davda
Published: Apr 9, 2020, 10:23 UTC

After consolidating within a range for the month thus far, GBP/USD is seen breaking higher from a technical pattern that could lead to a bullish continuation.

GBP/USD

In this article:

After showing strength last week, the US dollar has fallen back, weighed by an increase in risk appetite. The pound to dollar exchange rate has benefited and has broken higher from a consolidation pattern that had contained in the month thus far.

The early day price action signals a continuation of the upward trend that started in the second half of March, although data later today stands to impact the near-term direction.

Weekly jobless claims figures will be released out of the US and these numbers stand to impact the dollar pairs. The last two reports have shown a significant jump in the number of new unemployment claims filed each week and analysts expect this new trend to continue.

Aside from the unemployment data, Fed Chair Powell is expected to give an update on the economy. Yesterday’s FOMC meeting minutes revealed that the Fed was unanimous in its recent easing decisions although unclear about the risks presented because of the Coronavirus. Today’s remarks from Powell will follow a Q&A and should provide clarity as to the bank’s latest views.

The Bank of England announced today that is stands ready to finance the government to accommodate additional spending needed as a result of the virus outbreak. The government typically taps into the bond market to finance its operations but the BoE aims to offset any undue strain on the markets by funding the government directly. The last time this type of emergency measure was taken was during the Financial crisis in 2008.

Technical Analysis

GBPUSD 4-Hour Chart

GBP/USD has broken higher from a bullish flag pattern which signals an upward continuation.

There is a further hurdle at 1.2476 which served to hold the pair lower at the end of March and start of April. If GBP/USD manages to get above there, the next point of interest to the upside is 1.2740.

The resistance at 1.2476 can trigger a bit of a pullback. In such a scenario, the pair will need to hold on a retest of the upper bound from the bullish flag to keep the pattern valid. It currently falls around 1.2360.

Bottom Line

  • GBP/USD has broken higher from a flag pattern and is headed towards resistance that held the pair lower around the turn of the month.
  • The BoE has taken an emergency measure of funding the government directly to help with increased spending to battle the negative economic impacts of the virus.

About the Author

Jignesh has 8 years of expirience in the markets, he provides his analysis as well as trade suggestions to money managers and often consults banks and veteran traders on his view of the market.

Did you find this article useful?

Advertisement