GBP/USD Video 14.05.20.
Virus Fears Put Pressure On Riskier Assets
GBP/USD has settled below the support level at 1.2250 and continues to move lower.
The U.S. dollar is gaining ground against a broad basket of currencies, and the U.S. Dollar Index has firmly settled above the 100 level. I’d note that the U.S. Dollar Index is still in the range between 99 and 101, and a move out of this range will lead to increased momentum.
There are several reasons for the current U.S. dollar strength. U.S. Federal Reserve Chair Jerome Powell has stated that the Fed was not expecting to use the negative interest rate policy, something that the U.S. President Donald Trump wanted it to do.
The adoption of a negative interest rate policy would have put pressure on the U.S. dollar as the yield on U.S. dollar instruments would have come into spotlight and traders would have searched for better-yielding instruments.
The other reason is the renewed fears about a second wave of coronavirus which have put pressure on riskier assets like the British pound and provided a tailwind for safe haven assets like the U.S. dollar.
The World Health Organization has recently stated that the coronavirus may never go away and that it was hard to develop a vaccine. Adding to pressure is the fact that some countries that have relaxed restrictions are seeing an increase in the number of coronavirus cases.
GBP/USD has breached the major support level at 1.2250 and immediately gained additional downside momentum. Now, the pair heads towards the next support level at 1.2170, which was the low of the first pullback following the rebound from mid-March lows.
In case this support level is breached to the downside, GBP/USD will find itself on the way to 1.2000, although I’d expect some support at 1.2115.
On the upside, the previous support at 1.2250 will serve as the first resistance for the pair. Those traders who have missed their chance to sell near this level will likely use this opportunity if GBP/USD returns to 1.2250, creating resistance.
In case this resistance is breached to the upside and the pair returns to the previous trading range, the next major resistance is located at the 20 EMA at 1.2360.