Technical Outlook: GBPUSD Poised For Breakdown?

While many countries across the globe were tightening lockdown restrictions amid surging Covid-19 cases, the UK was doing the complete opposite. Non-essential retail, restaurants, and pubs with outdoor spaces were reopened. Given how the easing of restrictions is expected to spark a surge in consumer spending, this development is likely to boost confidence in the UK’s economic recovery.

The key question is whether this will be enough to support the British Pound in the short to medium term. Since the start of April, Sterling has weakened against every single G10 currency, shedding over 1.70% against the Euro.

Easing lockdown restrictions is a welcome development for Sterling. However, political risk in the form of the upcoming Scottish parliamentary elections and concerns relating to AstraZeneca Plc’s shot could throw a proverbial wrench in the works for bulls. On top of this, an appreciating Dollar may ensure the GBPUSD remains trapped in the current bearish channel on the daily charts.

A quick look at the fundamentals

The UK GDP report this morning revealed that the economy expanded less-than-expected in February. Growth expanded 0.4% month-on-month as lockdown restrictions remained. Although this was below the 0.5% expectations, it was a solid improvement from the -2.9% in January. Industrial and production figures both exceeded market expectations by rising 1.0% and 1.3%, respectively month-on-month. Unsurpsingly, the Pound offered a muted reaction with prices trading around 1.3745 as of writing.

Technicals swing in favour of bears….

From a technical perspective, the GBPUSD remains under pressure on the daily charts. Prices are trading below the 20 Simple Moving Average while the MACD trades below 0. There seems to be support around the 1.3670 level which is coincidentally above the 100 Simple Moving Average. A solid breakdown and daily close below this level could open the doors towards 1.3570 and 1.3500.

Should 1.3670 prove to be reliable support, a rebound back towards 1.3900 could be a possibility.

For my intraday traders, a potential breakout opportunity is forming on the hourly timeframe. Support can be found at 1.3725 while resistance at 1.3770. If Pound bulls are still in the game, prices may venture towards the 1.3770 level before testing 1.3800. Alternatively, an hourly close under 1.3725 could open the doors towards 1.3670.

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Lukman Otunuga

Lukman Otunuga is a research analyst at FXTM. A keen follower of macroeconomic events, with a strong professional and academic background in finance, Lukman is well versed in the various factors affecting the currency and commodity markets. Lukman provides in-depth analysis on the global currency and commodity markets and is often quoted by leading international media outlets such as: MarketWatch, CNBC, NASDAQ, Reuters, AFP, The Guardian and Yahoo. Prior to joining FXTM, Lukman spent two years as a research analyst with international currency broker FXCM, where he focused on a technical and fundamental analysis of the global currency, commodity, and stock markets. Lukman was also responsible for leading educational seminars for international and local high net worth individuals, and has published a series of educational articles on forex trading with City A.M. Lukman holds a BSc (hons) degree in Economics from the University of Essex, UK and an MSc in Finance from London School of Business and Finance, where he studied corporate finance, mergers & acquisitions and the role of international financial institutions