GBP/USD Daily Forecast – Sellers Defend 1.3200 Level At European Open After a Volatile Weekly Start

The markets continue to show an aversion to risk with ongoing concerns about the Coronavirus and a plunge in oil prices after Saudi Arabia and Russia failed to reach an agreement to stabilize prices.

Oil prices were down more than 30% in Asian trading but recovered about a third of the loss as of the European open. The US 10-year bond yield declined to a record low of 0.36%, about half of what it yielded on Friday, but has also recovered part of the losses.

The volatility seen today gives investors more of a reason to look to central bankers and government officials to ease monetary and fiscal policy.

Last week, Andrew Bailey said a rate cut is not imminent despite the Federal Reserve reducing their rates by half a percent in an emergency response to the Coronavirus outbreak. Bailey will be replacing BoE Governor Mark Carney on March 16.

British Prime Minister Boris Johnson will oversee an emergency meeting today to address the recent escalation in the Coronavirus. Last week, Johnson outlined a plan that involved social distancing and delaying the outbreak in hopes a cure will be found. The PM may change his views and try and tackle the outbreak rather than attempt to delay at this point.

Technical Analysis

GBP/USD was on the verge of breaking out from a downtrend channel that has encompassed price action in the year thus far. Bears stepped in after the European open to drive the exchange rate back below the upper bound of the channel.

The direction of the pair from here will ultimately depend on how the governments and central bankers respond to the escalation in the virus and the volatile weekly open.

From a technical perspective, the pair shows reversal potential considering the trend channel is holding so far, and the selling pressure seen in the first hour of European trading. A sustained drop below 1.3050 can provide further evidence of a turn.

An upward break above 1.3200 would point to a bullish breakout which could lead to significant gains for the pair.

Bottom Line

• It’s been a volatile open with oil prices shedding a third of its price in Asian trading while the US 10-year bond yielded half of what it did on Friday.
• The markets will want to see how government officials and central bankers react to the latest volatility. The response should provide a fresh driver for the markets.