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The GBP/USD exchange rate is quoted at 1.2325 at the time of writing after Sterling loses further ground at the start of a new week. Analyst and technical forecaster Richard Perry, of Hantec Markets, says momentum indicators for the exchange rate continue to deteriorate.
Despite an early rebound this morning, GBP/USD remains under corrective pressure. A slight realignment of what is now a two and a half week downtrend sees GBP/USD still pulling lower within its medium term range (of $1.2075/$1.2810).
The market has bounced initially off $1.2312m, but with momentum indicators still deteriorating, there is a sense that near term bounces will struggle to sustain traction.
The near term trend sits around $1.2460 today, so there is a little room still for a rebound, but any failure under last week’s high of $1.2540 would add to a continued corrective outlook.
The hourly chart shows initial resistance around $1.2450 as a building pivot area. Below $1.2312 opens $1.2160 once more and the medium term range lows.
Today we see the dollar pressured across major forex, whilst equities are struggling (a degree of catch up on Wall Street losses from Friday though).
Risk aversion has taken more of a grip on major markets in recent sessions as a drip feed of negative newsflow surrounding second wave infection rates of COVID-19 has increased.
Infection rates rising again in Japan, Australia and Germany are a concern, but alarming increases in the infection rate curves across several US states have made traders sit up and take note. The risk recovery from the pandemic cannot be a one way bet.
The emergence of the US from economic shutdown will need to be re-calculated as several states re-instate elements of lockdown procedure.
The weight of this on the risk recovery is growing. The decline of longer date Treasury yields (and curve flattening) is a signal for risk aversion and risk asset plays are increasingly struggling. Wall Street is faltering back towards testing key technical breakout support, whilst oil is also slipping as the prospects of demand recovery are scaled back.
The interesting mover here is how the market views the US dollar.
Does the dollar begin to lose its safe haven status if the US is seen to be the major focus of a second wave?