GBP/USD Shows Signs of Reversing as the Dollar Comes to Life

The US dollar reversed sharply higher against a basket of currencies on Thursday, dragging the GBP/USD down towards its weekly opening price after briefly trading at fresh one-month highs.

The greenback was steadily bid since the Asian session on Wednesday and gained further upward momentum after retail sales in the United States were reported to decline a record 8.7% in March.

Equity markets in the US pared recent gains following the report and the S&P 500 last traded flat on the week. Nevertheless, it still shows a roughly 28% gain from the March low.

Risk assets in general have come under pressure although it may be too early to call it a shift to risk aversion. The price of gold declined slightly yesterday after posting a fresh seven year high earlier in the week. Gold is viewed as a safe-haven and typically rallies when risk appetite fades among investors.

UK Health Minister Matt Hancock was optimistic in yesterday’s daily Coronavirus briefing but felt it was too soon to start easing social distancing measures. Hancock commented that the rise in new cases is flattening although if restrictions were lifted, the “virus would run rampant once again.”.

Following yesterday’s disappointing US retail sales figures, investors will look to the US jobless claims report which is scheduled for release in the early North American session. Analysts are expecting 5.3 million new people to have filed for benefits last week.

Technical Analysis

GBP/USD has made a fake breakout above 1.2523 resistance this week and the level will be important in the trading session ahead.

While below it, the currency pair stands to decline further, especially if the dollar makes further ground.

The trade-weighted US dollar index (DXY) rallied firmly yesterday and has posted a bullish reversal candle on a daily chart. The US index was last seen testing the psychological 100.00 level which might offer a near-term hurdle.

A stronger dollar could push GBP/USD down towards support at 1.2306 while stronger support is seen near 1.200.

Bottom Line

• GBP/USD shows signs of reversing while the US dollar index signals that it may have found a bottom.
• The weekly US jobless claims report is expected to show a slightly fewer people filing for claims although it would be the third consecutive week of claims above 5 million if the report is inline with the analyst consensus.