COVID-19 Second Wave Fears Weigh On Pound
UK Prime Minister Johnson decided to take a softer stance on Brexit negotiations and to compromise on the controversial Brexit bill. The news initially boosted the Pound, but the climb was soon erased by a Fed-powered US Dollar and the pair is now trading around 1.2860 after being rejected by the massive psychological level at 1.3000.
At the recent Monetary Policy Meeting, the Bank of England stated that a negative Bank Rate is taken into consideration, a fact that sent the Pound sharply lower. BOE Governor Bailey is set to speak at least two times this week, meaning that we could get more insight into this negative rate development. Adding to all this, the number of COVID-19 cases has risen across the UK, prompting the lockdown of some regions.
The Week Ahead
Tuesday, September 22 at 10:30 am GMT, BOE Gov Bailey will speak at a British Chamber of Commerce webinar. Later in the day, at 5:30 pm GMT, Fed Chair Powell will testify on the CARES Act before the House Financial Services Committee.
Wednesday, September 23 we will take a look at the British and US Manufacturing and Services PMIs, which act as gauges of economic health, derived from the opinions of purchasing managers from the respective sectors. The last major event of the day will be another testimony of Fed Chair Powell, this time on the impacts of COVID-19, before the House Select Committee.
Thursday, September 24 at 5:00 pm GMT, BOE Gov Bailey will speak at the North East England Chamber of Commerce webinar, while at the same time but on the other side of the pond, Fed Chair Powell and US Treasury Secretary Steven Mnuchin will testify on the CARESS ACT before the Senate Banking Committee. All these public appearances may move the markets, thus caution is recommended.
The Technical Scene
GBP/USD is currently bouncing between support and resistance, respecting every level almost to the pip. After dropping sharply, the pair found support at 1.2790 and jumped higher from there, only to be rejected at the strong 1.3000 resistance level.
It must be noted that 1.3000 and the recently broken bullish trend line, have created a confluence zone and price is clearly reacting to it, which suggests that the current bearish momentum will likely continue through 1.2790 and will possibly take the pair into 1.2690 (1.2700).
In the longer term, we may even see a return to the bearish trend line visible on the chart but of course, such a move will depend a lot on the political and economic scene.