GBPUSD: Is the recent trend going to continue?
Since Cable made a 2020 low in March (1.1409), the market has entered an uptrend and traded as high as 1.2647 last week. It did this after breaking the 27 March high of 1.2484. Since then the market moved back and has traded around the 1.2484 mark. The low for April currently stands at 1.2163.
GBPUSD Daily Chart
What have been the catalysts for this recent move?
First the low for the year in cable coincides with the high of the year for the USD Index. Just looking at the chart below, where the USD Index (Candlesticks) and GBPUSD (Line Chart) are plotted, we can see that somewhere around mid-March the pair started to move mainly due to either USD weakness or strength. These moves coincide with the moment where we had a liquidity crunch and the USD Index started moving higher due to a huge dollar demand and it reached it's high for the year of almost 103. After this the Fed started introducing it's support programme with QE and lowering interest rates. It managed to provide some relief in terms of liquidity and the USD sold off since then. Therefore to potentially understand where this pair is headed, USD related events could be the ones to watch.
USD Index(Candlestick) vs GBPUSD(line) daily chart
That being said the UK data for the period after the lockdown started is just starting to get released. We shall see whether this will be able to push the pound back towards it's lows.
Is the supremacy of the USD finally done? During times of crisis it is considered a safe haven currency, and naturally as a lot of assets worldwide are priced in USD, it's possible that the demand could skyrocket again. However, levels of USD Index at 103 are unsustainable and the world can hardly function. This is due to foreign government debt being priced in USD and also as mentioned assets that are priced in USD. If the USD enters another rally, it would be interesting to see whether the Fed will be able to control the storm and provide liquidity again.
Summary of chart levels:
April high - 1.2647
27 March high - 1.2484
April low - 1.2163
2020 low - 1.1409
Relevant Data This week:
Tuesday - UK Average Earnings Index + Bonus (Feb), UK Claimant Count Change (Mar), US Existing Home Sales (Mar)
Wednesday - UK CPI(YoY) (Mar)
Thursday - UK Preliminary Composite, Manufacturing, Services PMI; US Initial Jobless Claims, US New Home Sales(Mar)
Friday - UK Retail Sales (MoM) (Mar), US Core Durable Goods Orders (MoM) (Mar)