GBP/USD. Preview of the week. British economy may contract more than the US. Pound has every chance of continuing to fall


The British pound sterling traded quite differently from the euro last week, against the dollar. The GBP/USD pair resumed its downward movement and maintained it all week. There were hopes that, resting on the lower border of a wide side channel, there would be a rebound and an upward movement, but on Friday, the pair's quotes overcame this line, without even noticing its presence. At the same time, it is impossible to say that traders based their decisions on macroeconomic data. Since a lot of important data came from the United States last week, and all of them showed one thing – a serious contraction of the American economy. The next report on applications for unemployment benefits, industrial production and retail sales completely failed. However, market participants still continued to sell the pound and buy the dollar. Thus, we can assume that traders have once again started to pay attention to the fundamental background, which, despite all the hardships in the United States, still remains in favor of the US currency, because the situation in the UK is much worse. In short, the UK leads Europe in the number of deaths from coronavirus, in the number of diseases, a split is brewing within the United Kingdom, as Wales, Northern Ireland and Scotland do not want to leave the EU, do not want to submit to London and are skeptical of Boris Johnson. In addition, the British economy experienced serious problems in the last three years, when he was in the process of Brexit, and therefore, it has weakened until the beginning of the epidemic, London refuses to extend the transition period and trade deals with America and EU there is unlikely they will be concluded by the end of the year. This means that from January 1, 2021, trade with Europe will be conducted under the rules of the WTO, with tariffs and duties. These factors negatively affect the pound. If the euro is still afloat, although there are no less problems in the eurozone, then the pound will move down.

A new trading week can only worsen the situation of the British currency if market participants continue to pay attention only to the general fundamental background. However, it is possible that statistics will also cause a certain reaction, so let's consider it. In Britain, on Tuesday, the unemployment rate for March will be released with a forecast of just 4.4% (the previous value of 4.0%), as well as applications for unemployment benefits for March (the forecast is 100,000 at the previous value of 12.1 thousand). A report on wages will also be published on this day, but it has almost no significance in the current conditions. In the United States, Federal Reserve Chief Jerome Powell is scheduled to speak in Congress on this day. The UK consumer price index for April will be published on Wednesday, with a forecast of 0.9% y/y (the previous value of 1.5% y/y), although this indicator is also far from being the most important at the moment. The minutes of the Fed meeting is set to be released on May 20 in the United States, an event with a loud sign and with very little potential. It rarely causes at least some reaction from traders. On Thursday, the UK is scheduled for the next publication of business activity indices for services and manufacturing for May, which will most likely remain at their meager values. Similar figures will be released in the US, plus applications for unemployment benefits with a forecast of another +2.3 million primary and 24.5 million secondary. A report on retail sales in the UK is scheduled on the last trading day of next week, with a forecast of -22.7% in annual terms and -16.9% in monthly terms. Thus, almost all data from Britain will have a negative sign. There will be nothing to pay attention to in the United States, except the next report on applications for benefits and Powell's speech, which is still unknown what will inform Congress. Everyone is already used to his usual rhetoric about "economic shock, a strong fall in the US economy", and it will not surprise anyone. It turns out that the statistics next week could put pressure on the position of the British pound.

At the same time, an increasing number of world publishers, media, and just experts and analysts are paying attention to the topic of a possible new confrontation between China and the United States. According to many, Washington is trying to put China in the most uncomfortable position with the Lindsey Graham bill. In fact, the White House wants to get access for its scientists and experts to Chinese Wuhan to find out what really happened there and whether the Chinese authorities are to blame for it. Obviously, if American scientists get to Wuhan, they will find any evidence of Beijing's guilt. But if they do not get access to the laboratory where the coronavirus allegedly began spreading, then Washington will have an official opportunity to declare to the whole world that the Chinese authorities are clearly hiding something and the matter is dirty and, accordingly, will have formal grounds for imposing any sanctions against the PRC. And even now, there is little doubt that China will not allow Americans to enter Wuhan, and Washington will impose a full list of sanctions against Beijing, except for those that can cause China's counter-measures and further harm the US economy. Recall that the US GDP is expected to lose about 5% in 2020, and China's GDP could even grow by 1.2%. Trump does not need another blow to the US economy. At the same time, he needs everyone to recognize China as the culprit of the epidemic and, preferably, to be punished, preferably financially. Only such a development will leave Trump with a chance of winning the November 2020 presidential election.

How will all this affect the exchange rate of the US currency? It is easy to guess if a new trade and economic war will begin between the United States and China, then the consequences for the US economy can be very serious, respectively, and the demand for the dollar in world markets will fall. However, this may not happen together with the British pound, since the UK has enough problems of its own, and its currency is not in demand, in principle, in recent years. Therefore, the US dollar may feel uncomfortable against the euro, and could continue to rise in price versus the pound.


In technical terms, the pair continues a downward movement, as evidenced by all indicators of both trading systems, Ichimoku and Linear Regression Channels. Therefore, the best that the pound can now count on is correctional growth. The potential for its fall is almost unlimited. The most likely target is the March 20 low at 1.1411.

Recommendations for the pair GBP/USD:

Since the pound/dollar pair has started a new downward trend, we recommend that we continue to sell it, using mainly the 4-hour timeframe. Volatility remains the same, about 120-130 points per day, there are no signs of panic. Goals for short positions are the support levels of 1.1985 and 1.1806.

The material has been provided by InstaForex Company -