Cable, one of the popular FX pairs, had quite an impressive run since the end of March when it bottomed around 1.14. Since then, the pair had managed to gradually move higher, erasing most of the losses generated by the COVID-19 pandemic. However, weakness can be noticed around the 1.30 key psychological area, which might mean that a corrective move could be the next move forward.
Weakening US dollar led to risk currencies rally
Initially, the US dollar spiked higher on rising pandemic fears, but improved risk sentiment combined with aggressive actions from the Fed had temporarily solved the funding stress, leading to a rally in risk currencies like the Euro and the Pound. Considering that European nations had coped better with the spread of the virus, this could be another reason why Cable had been such an outperformer up until now.
Positive market sentiment
Even though critics continue to point towards the disconnect between financial markets and the actual economy, the bottom line is that the risk sentiment had been very positive, given the massive rallies we’ve witnessed so far. The past decade had thoughts us that each time central banks and governments step in with massive liquidity, the markets respond accordingly, without challenging these authorities. Would that be the case for as far as we can see? Not necessarily, but for now, this is setting the tone in the markets.
Brexit uncertainty to weigh on the Pound?
Brexit negotiations are still not done and this might be another reason why FX conditions could deteriorate in the months ahead. September will be a critical month for the process and at the current stance, it seems like only an extension agreement could lead to a proper deal down the road. However, UK’s PM Boris Johnson is not yet willing to make concessions, keeping fears of a disorderly Brexit intact. Is this just a negotiation tactic used by both sides to gain leverage? That’s to be seen in the next few weeks, but in the meantime, GBPUSD could lose momentum with no positive news.
Technical resistance near
If we look at the chart, the 1.30 area is not only a key psychological zone, but it is also the place where the March selloff had started. “History repeats itself” is one of the main mantras of technical traders, and so far, we can notice two rejections around 1.31. In case the price won’t be able to break impulsively above the March 9th high, then a corrective move seems like the most likely scenario moving forward.