GBP/USD Will Struggle To Hit 1.30 Point, Say Analysts

The US dollar staged a surprising comeback on Monday as a fresh wave of concerns over the latest twist in the saga of the coronavirus pandemic appeared to bed in.
The pound was one of the main losers from this – and, in price chart terms at least, this made contextual sense.  The charts show that the pound is on a losing streak away from the high point of 1.3483 that it reached at one point earlier in the year.

Strategists have since identified the apparent presence of what is known as a ‘Bear Flag continuation pattern’ – suggesting that the downward trend is here to stay, at least for now.   It was also flagged by analysts that this trend has been noticed close to one of the most important and market-moving average levels, which in the pound’s case is 1.2760.  This downward trend makes it unlikely that sterling will hit the 1.30 point on the charts, which is in turn likely to send a clear note to the markets that the outlook is gloomy.

From there, analysts say, the support point of 1.2762 could be on the cards.   It could then go on to head below 1.27 altogether.   Away from the price charts, one of the key threats to the pound in the coming weeks is certain to be the coronavirus pandemic.  Britain appears to be particularly vulnerable to a second wave, and one senior medical scientist advising the UK government today made a negative prediction.

Sir Patrick Vallance, who serves as the UK’s chief scientific advisor, said that the virus is close to doubling in incidence every week.  It is now widely believed that Britain could face more lockdown measures – suggesting a second knock-on effect.  It is believed that Prime Minister Boris Johnson will make a statement tomorrow outlining what measures the government is likely to take.   Looking at the economic calendar, meanwhile, the pound will also face further tests as the week goes on.

A preliminary Purchasing Managers’ Index release for September will be out on Wednesday morning at 8:30 am GMT.  This is due to show a change from 55.2 to 54.3.  On Thursday, meanwhile, there will be a Distributive Trades Survey for September published by the Confederation of British Industry.  Month on month, this is expected to go from -6% to -10%.  Central banking action will be in the spotlight at 2 pm GMT when the Bank of England’s Governor Andrew Bailey makes a speech.

While this is unlikely to have the sort of effect on the markets as a meeting of the Monetary Policy Committee might, it will be watched by traders for any signs of potential changes to the policy in the future.  On Friday, there will be a release out looking at public sector net borrowing for August. This is due to come out at 6 am GMT.

Nigel Frith

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