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British pound breaks higher.

GBPUSD forex Analysis

On a weekly chart it is easy to see that since the Great Financial Crash, Sterling has been weak against the US dollar. The magnitude of the decline from the end of 2007 to the 2009 low has never been repeated, even though the UK has been through some volatile risk events. The Brexit referendum result was the next big decline in the price of GBPUSD and most recently the coronavirus pandemic has seen Cable drop 15% before rebounding all of the 2020 price action.

Technical analysts will be aware that the GBPUSD pair is now trading above a significant trend line that encompasses the 2007, 2014 and pre-coronavirus highs, and that GBPUSD is currently finding support above this technical support line. The 2019 swing highs have all been taken, so any liquidity above there has now been absorbed leaving the 1.4000 big figure as a target before the double-top 2018 highs.

On a weekly chart the MACD is showing bullish momentum with the moving averages diverging and that combined with a strong bullish close last week, shows momentum is on pounds bullish side.

Economically the UK is not fairing very well and the governments-imposed lock down restrictions are hampering any chance of the start of 2021 being good for British commerce and industry. Services PMI fell sharply, and unemployment is rising, as coronavirus rampages on with new variants and no herd immunity expected for several months. Public investment has declined, and business confidence is currently at 0, so any further spending from the commercial or public sectors is less likely as is hope of a rise in inflation.

Government scientists are recommending that PM Johnson keep secondary schools’ lockdown and that stricter national lockdown measures should be implemented if the UK is to keep covid-19 from causing greater damage to the nation’s health.

Any gains therefor in the GBPUSD are most likely to come from further weakness in the US dollar. With President Trump signing a $2.3 trillion stimulus and spending package it is likely the fiscal flows for 2021 are to be much larger than previous years and therefore a continuation in weak dollar + higher equities and risk markets is likely to continue. It would take a marked change in monetary policy from the incoming Biden administration to undo what is the US dollars current course.

The USA is suffering badly from the coronavirus too, with 1 in 1000 citizens contracting the disease. The restrictions in America will also hamper the economic outlook so all eyes will be on the H2 data post vaccine rollout to see if there is a change in direction economically for the world’s largest economy. Further stimulus packages should be expected, starting with more direct payments to the US citizens.

On the daily chart for GBPUSD technical support from the 200 period simple moving average is currently found at 1.2900, and only a close lower than last week’s swing lows could signal the break of a rising channel and possible tests of 1.3000 to follow.

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