After Britain officially left the European Union at the end of January, the British Pound suffered heavy losses against almost all the major currencies. GBP/USD lost over 300 pips in the last 12 days. This is a real magnitude even for the liquid major pair.
There is still a certain nervousness and uncertainty on the markets, as there is no clarity on the subject of trade agreements with the EU. Nobody really knows what form cooperation between the two partners should take in the future and what impact the Brexit will have on the European economy, especially the British economy. More and more experts and economists doubt that a “peaceful” solution will be found. Boris Johnson is seen by many as unwilling to compromise. But Brussels, too, is obviously no longer willing to comply with Britain any further. The lines are currently hardening. Negotiations could go on for a very long time. And the longer they last, the more likely it is that no compromise will be found after all. A hard Brexit would be the result. Both sides want to avoid this, but it remains to be seen whether they actually succeed. It is quite clear that the British Pound is finding it difficult to gain strength under these circumstances.
Economic data support the British Pound
Yesterday morning a batch of economic data was released from Britain. Although they were rather mixed (GDP +1.1%, Industrial Production -1.8%, or Construction +0.4%). However, the Pound managed to stop its slide against most major pairs. This has led to a slight recovery across the GBP block.
The Asian markets also showed their friendly side tonight. Although fears of the coronavirus have not abated and the number of dead and infected remains high. The Far Eastern stock markets performed positively.
The British Pound vs. the US Dollar also gained slightly, reaching a high of 1.2967.
The current GBP/USD situation
Currently, the GBP/USD is just below its resistance at 1.2970. It will be interesting to see if the British Pound vs. USD can extend its rebound in today’s trading. Short-term indicators are already at extremes, indicating that the trend is running out of steam. New impetus is needed in the market to hold the level at and above 1.2970.
Should these fail to materialize, the bears will continue to expand their short positions and the long-term downward trend may continue. As a first price target we can take the support at 1.2949 (23 Fibonacci retracement). Lower, at 1.2911 is the Daily Pivot Point, which can absorb the price for the time being. Should this support also be broken, the British Pound will continue to lose strength, with prices at 1.2900 becoming more likely. Here we could start thinking about closing short positions and taking profits.
However, if the resistance at 1.2970 is breached, the rebound at GBP/USD will continue and the focus will be on the 1.3000 level. This area is difficult to break as the British Pound is encountering a double resistance. It is the 38 Fibonacci retracement and the “big figure” (1.30).
In general, the Pound continues to tend to weaken and any counter-reaction on the upper side is likely to be used by short traders to sell. So if you want to go against the long-term downtrend, you have to expect to choose the “dangerous” side.