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Vladimir Zernov

GBP/USD Video 10.04.20.


U.S. Dollar Shows Weakness But Safe Haven Buying Still Supports The American Currency

It is a quiet day in the markets due to Good Friday, but the U.S. will still report important economic data.

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Inflation Rate and Core Inflation Rate for March are due to be released today. The previous report showed that Inflation Rate was 2.3% in February, while the Core Inflation Rate was 2.4%.

Current analyst consensus calls for March Core Inflation Rate of 2.3% and Inflation Rate of 1.6%. Unlike the Core Inflation Rate, Inflation Rate includes energy.

Energy prices have been under huge pressure due to coronavirus crisis so it’s not surprising that analysts expect that Inflation Rate for March will decline compared to February numbers.

Yesterday, the U.S. Federal Reserve has initiated a $2.3 trillion program to help local governments and small and mid-sized businesses. This program is a major longer-term catalyst for GBP/USD because the additional liquidity injection puts pressure on the U.S. dollar.

Due to Fed’s move, the U.S. Dollar Index breached the 100 level to the downside and stays below it. However, the move did not provoke any panic sell-off in the U.S. dollar as it still stays the safe haven asset of last resort, and traders use it to hedge against potential downside in the markets.

The UK Prime Minister Boris Johnson left intensive care as his condition has improved. Previously, GBP/USD showed little sensitivity to news about Prime Minister’s health. Now that he is in a better shape, the downside risk due to potential political vacuum in the worst-case scenario is certainly off the table.

Technical Analysis

GBP/USD continues to move in a tight upside channel and is currently trying to get through the major resistance level at the 50 EMA at 1.2480. This level has already been tested many times and it is a major obstacle on the pair’s way up.

In case this resistance level is breached to the upside, GBP/USD will likely gain increased upside momentum. From a big picture point of view, the breach of the 50 EMA opens the way to the next major resistance level at 1.2750.

On the support side, the 20 EMA level at 1.2320 is the nearest support level for the pair.

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