GBP/USD Set to Snap 10-Day Rally as Risk Appetite Sours on Grim Fed OutlookThe British pound is under pressure against the dollar in early trading as equities fall and the dollar bounces.
The predominant theme in the month thus far has been rising stock markets and a declining dollar on the back of optimism of an economic recovery as countries around the world have eased lockdown measures.
This theme was threatened by cautious words by the Federal Reserve yesterday and news that some American states are showing signs of Coronavirus cases rising.
Fed Chair Powell said yesterday that the economy is set to contract by 6.5% this year and expects the unemployment rate to be 9.3%. While the economy is expected to continue to improve in 2011, the unemployment rate for next year is estimated at 6.5% compared to 3.5% earlier this year.
The UK will release their latest GDP growth figures on Friday which are estimated to show an 18% contraction in April following a 5.8% decline in March.
Equity markets around the world have fallen under pressure following the Fed meeting with the S&P 500 set to open sharply lower today to erase the gains from Friday’s US jobs report beat.
UK’s FTSE 100 is down nearly 2% shortly after the European open, set to post a fourth consecutive daily decline after gaining roughly 27% from the March low.
Inflation related data and the weekly unemployment claims report from the US will be released shortly after the North American open.
GBP/USD is set to close lower after an impressive bullish streak. The level to watch in the session ahead is 1.2677 as it marks the 200-day moving average which is a well-watched indicator.
The pair has fallen below a rising trend channel that originates from the late May low. This can provide an early indication of a correction to come although the broader uptrend cannot be ignored.
For the session ahead, major resistance is seen at 1.2766 as the level previously held the pair higher in the first quarter of 2020 and the last quarter of 2019.
On an hourly chart, some resistance levels that stand to impact intraday trading include 1.2708 and 1.2744.
Major support for the pair falls at 1.2625 as this level previously served to hold the pair lower twice in April.
- The markets are showing signs of risk aversion which stands to underpin the dollar.
- Friday’s GDP report from the UK could be a market mover and there may be some position squaring in GBP/USD following an impressive bullish rally.
For a look at all of today’s economic events, check out our economic calendar.