GBP/USD Daily Forecast – A Pause After The Recent Rally

GBP/USD Video 27.05.20.

Increasing U.S. – China Tensions Provide Some Support To The U.S. Dollar

Yesterday, GBP/USD got material support from the global risk-on sentiment as optimism about recovery and hopes for a vaccine for COVID-19 pushed riskier assets higher.

As a result, GBP/USD was able to move above the key resistance level at 1.2250 and settle above the 20 EMA.

The U.S. dollar, which serves as a safe haven asset of last resort, was losing ground against a broad basket of currencies. However, the U.S. Dollar Index managed to stay within the range between 99 and 101.

Today, the U.S. dollar is trying to rebound as demand for safe haven assets increases due to Hong Kong tensions.

Hong Kong is set to pass a law which will criminalize disrespect for China’s national anthem. Critics say that this is another move to curb Hong Kong’s freedom which aims to destroy the current “one country, two systems” setup.

U.S. President Donald Trump has already stated that he will take action against China this week. While Trump did not provide details, analysts expect that the U.S. will impose sanctions on China.

It remains to be seen whether the increasing tensions between U.S. and China will provide enough support for the U.S. dollar. Relations between the two countries have materially worsened over the past month but this did not stop the rally in many markets.

Technical Analysis

GBP/USD has breached the key resistance at 1.2250 as well as the 20 EMA and is trying to settle back into the previous range between 1.2250 and 1.2650.

The 50 EMA at 1.2350 serves as the first material resistance level for GBP/USD. It has already been tested and proved its strength. In case GBP/USD manages to get above the 50 EMA, it will gain additional upside momentum and head towards the next resistance level at 1.2450.

On the support side, the previous resistance level at 1.2250 will become the new support for GBP/USD. In addition, the 20 EMA is located in the nearby, creating a support area above 1.2250.

In case GBP/USD settles below the support at 1.2250, it will gain downside momentum and head towards the next support level at 1.2170.

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