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Aug 11 - 10:55 PM

GBP/USD - COMMENT-Sterling Holds Its Range, But Downside Risks Mount

By Andrew M Spencer  —  Aug 11 - 09:45 PM

Cable has been in a holding pattern after last month's gains that were driven by a weaker dollar as risk appetite recovered, reducing safe-haven dollar flows, but this may be about to reverse.

In the U.S., the Federal Reserve's still cautious outlook on the economic recovery seems valid nL1N2F71NI, coronavirus cases appear to be plateauing at elevated levels nL1N2FC19Z, and a viable coronavirus stimulus plan is no certainty nL1N2FD1TR. All this suggests that a risk correction is possible, which would revive the dollar's safe-haven appeal.

The UK saw dire employment data Tuesday, with economists predicting worse to come nL8N2FD1DP, COVID-19 cases are climbing again nL8N2FD5XE, and finance minister Sunak is contemplating delaying the autumn budget on fears of a second COVID-19 wave nFWN2FD1BK- all of which offerslittle reason for sterling strength.

Technically, the July GBP/USD uptrend has stalled in August, providing a fresh 5- and 10-day moving average negative cross Tuesday, while daily momentum studies crest or head lower.
These are the first negative signals in a month.
A break of last week's 1.2982 low and the rising 1.2904 21-day moving average(DMA), a base in July, would suggest a deeper correction to the 1.2712 200 DMA is viable.

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Source:
Refinitiv IFR Research/Market Commentary

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