The British currency was among the most affected assets at the end of the week: it plunged by almost a thousand points against the greenback: if GBP/USD tested the 31st figure on Monday, March 9, yesterday, traders updated the annual low at 1.2260. It is worth noting that at the end of Friday's trading, the dollar index paused its growth, allowing many currencies of the major group to slightly win back their positions. The euro, Canadian dollar, franc, Australian dollar – all these currencies showed a slight correction when traders began to take profits. The pound was an exception to this list – the British pound fell almost to the last minute of trading, demonstrating its helplessness and vulnerability.
It is worth recalling that the GBP/USD pair demonstrated amazing resilience for a long time: despite rumors of a rate cut by the Bank of England, the decline in key macroeconomic indicators, disagreements between London and Brussels - all these powerful fundamental factors - the price stayed around the 30th figure. Even the strengthening of the dollar was often ignored by GBP/USD traders - the pound was in its coordinate system, allowing it to gradually build up long positions.
But last week, the US currency made a splash, unfolding in all pairs. Market participants began to use the dollar as a defensive asset, disappointed in all other instruments of a similar nature: the yen has lost almost 800 points over the past five days, gold has fallen from 1702.95 to 1504.33 (Friday low). If earlier panic in the market put pressure on the greenback, now panic is a catalyst for its growth. Macroeconomic reports and even prospects for easing the monetary policy of the Fed play a secondary role in this context. The market focuses only on the theme of the spread of coronavirus, sharply reacting to key events.
For example, yesterday US President Donald Trump declared a state of emergency in the country. This regime grants broad powers to the Minister of Health, which will no longer be restricted by certain existing laws and regulations. In addition, this regime allows you to allocate up to $50 billion to fight the pandemic from the national disaster management fund. At the same time, the number of cases of coronavirus in the United States exceeded 2,000 people, 47 of them died. The state of emergency in the United States has become another symptom of the escalation of the crisis, so the panic mood in the market has only increased. And since the main beneficiary of this situation is now the dollar, it has strengthened its position in all pairs, including the pair with the pound.
The British currency was the most vulnerable in comparison with the other participants of the major group. First, the coronavirus has not spared the UK. The total number of confirmed cases there rose to 800 (while on Thursday this figure barely crossed the 500-digit mark). At the same time, the British Ministry of Health admitted that the actual number of infected people may be from 5 to 10 thousand people. Because of the epidemic, local elections have already been postponed, not to mention sports tournaments. Second, the pound is under additional pressure from complex Brexit negotiations. The parties are still in different positions, demonstrating their peremptory attitude. There is also information that the next round of negotiations will be canceled due to the pandemic. In this case, it is unclear how London will be invested in the previously agreed terms, which are set by law. Most likely, the Parliament will still move the deadline – but the current uncertainty on this issue puts significant pressure on the British currency, which is compounded by the general strengthening of the greenback.
We can assume with a hundred percent probability that the situation with the coronavirus will only worsen this weekend – the number of infected and dead will increase. This means that panic moods will continue to dictate their terms to the market, providing support for the US currency. In such conditions, you can only count on a correction of GBP/USD due to strong oversold, but you can only talk about a trend reversal if the dollar weakens overall.
From a technical point of view, the situation is as follows. On almost all the higher time frames (except MN), the GBP/USD pair is located on the lower line of the Bollinger Bands indicator under all the lines of the Ichimoku indicator, which formed a strong bearish Parade of Lines signal. This shows a clear advantage of the downward movement. The main goal of the downward movement is located on the lower line of the Bollinger Bands indicator on the monthly chart, i.e. at 1.2110.
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