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GBP/USD Little Changed at European Open After a Sharp Recovery Last Week

The British pound rallied firmly against the dollar last week to signal that a near-term bottom for the pair is in. The pair was aided by a weaker dollar and traders will assess this week if that weakness is here to stay.
Jignesh Davda
GBP/USD

Wild swings in the US dollar have dominated the currency markets in March. The US dollar index (DXY) went from nearly breaking to a fresh three-year high last week to falling about 4.5% which was its largest weekly loss in more than a decade.

The weaker dollar pushed the pound to dollar exchange rate firmly higher from a multi-decade low back above the psychological 1.2000 handle. The exchange rate has erased just over half of the loss from a sharp fall earlier in the month that saw GBP/USD drop 13.5% from a high near 1.3200.

British Prime Minister Boris Johnson announced on Friday that he has contracted the Coronavirus. The PM released a video statement in which he said “I’ve developed mild symptoms of the Coronavirus. That’s to say, a temperature and a persistent cough”. Johnson plans to continue leading the government’s response to the virus remotely.

The UK stepped up its fiscal stimulus efforts last week by extending a grant that covers 80% of wages lost as a result of the virus to self-employed workers. The scheme is similar to what is being offered to other workers in an attempt to minimize the negative economic impact of the virus.

Technical Analysis

GBPUSD Daily Chart

The recovery in GBP/USD last week has led to a bullish engulfing candle on a weekly chart which signals that dips in the week ahead are likely to be bough.

The next main hurdle for GBP/USD comes from its 200-day moving average, currently at 1.2661. Above that, further resistance is found at 1.2800 which had been critical resistance during a consolidation from October until the middle of March.

The US Dollar index has a similar outlook as DXY is nearing its 200-day moving average, an indicator that stands to keep the index supported over the near-term.

Last week, DXY fell below an important weekly support level at 99.61. Over the near-term, this level remains critical overhead resistance.

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Bottom Line

  • The trend for GBP/USD has shifted as the dollar rally stalled last week.
  • The 200-day moving average is considered a key hurdle for the pound to dollar pair in the week ahead.
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