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Jignesh Davda
GBP/USD

After volatile price fluctuations for most of March, GBP/USD has seen a sharp drop in volatility as the pair continues to hold within a range that began last week.

The markets are signaling a shift as the continuing recovery in the equity markets has weighed on dollar demand, causing a relatively sharp drop in the greenback in early trading on Tuesday.

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The S&P 500 on Monday made a clear break above a technical level at 2650 which served to be a major hurdle over the last two weeks. The rally is a show of optimism in the equity markets after a sharp decline in March.

UK Prime Minister Boris Johnson was admitted to the hospital on Monday for what was initially said to be a routine checkup. His condition appears to have escalated as media outlets have reported that Johnson has now moved to intensive care. Foreign secretary Dominic Raab will run the country until Johnson is in a better position to do so.

Housing data in March from reporting agency Halifax were unchanged from the prior month. The UK government has asked citizens not to move during the virus outbreak which has put the housing market on pause. Last week’s housing data from Nationwide had shown a slight uptick in prices.

Technical Analysis

GBPUSD 4-Hour Chart

There has been a sharp drop off in volatility for GBP/USD since late March and this trend seems to still be intact.

GBP/USD may be in the process of developing a bullish flag which would suggest more upside although it is too early at this stage to determine.

A break above channel resistance, currently near 1.2410, would offer confirmation. In such a scenario, the pair faces a further hurdle at 1.2471 although an upside flag break will signal a bullish continuation that should draw buyers.

To the downside, support for the pair is found at 1.2129 which falls near the lower bound of the trend channel.

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Bottom Line

  • Despite a weaker dollar, GBP/USD continues to hold in a consolidation and volatility remains subdued compared to last month.
  • PM Johnson has been moved to intensive care and foreign secretary Dominic Raab will oversee Johnson’s duties at this time.
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