GBP/USD Could See Volatile Swings as Markets React to Brexit and Coronavirus Developments

The broader markets have been driven by Coronavirus developments, and to a large extent, how the central banks and governments have managed the virus outbreak.

GBP/USD traders, however, are also gauging how Brexit negotiations are coming along in repricing the exchange rate.

Earlier today, UK Finance Minister Rishi Sunak commented that there were signs of good progress in trade talks with the EU. At the same time, he acknowledged the impact on GDP growth because of the Coronavirus.

The UK formally waived its option to extend its post-Brexit transition period on Friday, ahead of the legal deadline at the end of this month.

US equity markets continued the downward streak started late last week and the S&P 500 is set to tumble 2% at the opening bell.

Stock markets were weighed last week by a negative outlook from the Federal Reserve and concerns over a second wave of the Coronavirus.

Some US states saw a drastic rise in new virus cases last week which might force them back into a lockdown. Reports over the weekend showed a spike in new cases in Beijing which has led them to tighten lockdown restrictions.

Technical Analysis

There has already been a rise in volatility for GBP/USD as the pair fell nearly 3% from its high last week before catching a bid earlier today.

Considering the renewed Coronavirus concerns, and ongoing Brexit negotiations, volatility may continue to remain elevated for the pair.

The level to watch in the exchange rate is 1.2644. This price point acted as both support and resistance last week, but more importantly, it held the pair lower twice in April.

Further, the 200-day moving average falls in the vicinity of the horizontal level. If the pair manages to stay below it, it remains vulnerable to further losses.

Early day price action shows signs of strength, especially as the equity markets are under pressure which is typically bullish for the dollar. If the pair closes near or above 1.2550 by the end of the day, it might be signaling a further near-term recovery.

Bottom Line

• Volatility may rise as ongoing Brexit negotiations and Coronavirus developments stand to move the pair.
• Major resistance in the week ahead is seen at 1.2644 in the event the early day upward momentum continues.

For a look at all of today’s economic events, check out our economic calendar.