GBP/USD Volatility Remains Subdued

GBP/USD has seen a sudden drop in volatility in April and was seen continuing to trade essentially sideways in the early day on Wednesday.

The pair saw some buying yesterday as the dollar broadly lost ground against its major counterparts. The greenback has been following an inverse relationship with the equity markets as of late and was weighed by a rally in the stock markets.

Market participants appear to be more confident that a bottom is in for the stock markets, at least an interim one. The S&P 500 rallied to a fresh three-week high yesterday before paring back a bulk of the gains.

UK Prime Minister Boris Johnson has spent a second night in the hospital. Johnson was admitted to intensive care yesterday when it was announced that Foreign Secretary Dominic Raab would stand in for Johnson.

The economic calendar for the session ahead is relatively light. The Federal Reserve is scheduled to release minutes from its latest FOMC meeting.

Technical Analysis

The dollar is likely to continue taking its queues from risk sentiment although the commodity currencies seem to be benefiting the most from the dollar weakness seen in the early week. Sterling appears to be less sensitive to swings based on risk appetite in that context.

GBP/USD continues to trade within a downward trending channel. Considering the general lack of momentum, this could very well turn out to be a bull flag pattern.

The exchange tested the upper bound of the channel yesterday and therefore a breach above yesterday’s high would tend to set the pattern into play which would signal a bullish continuation.

Further resistance for the pair is found at 1.2476 for the session ahead, although if the bull flag pattern is activated, the hurdle is not likely to hold sellers for too long.

In the session ahead, support is found at 1.2250. If the pair fails to hold above it, the next level of downside interest comes in at 1.2130 which is currently near the channel bottom.

Bottom Line

• GBP/USD remains within a range. Volatility is likely to pick up on a range break.
• The Federal Reserve is scheduled to release minutes from its last meeting later today.