Unfazed by Political Rout, GBP/USD Picking Up Bullish Momentum

Key Talking Points:

  • GBP/USD attempt to recover above 1.39 as momentum builds
  • The spread of the Delta variant increases the average cases in the UK
  • Brexit and political drama fail to scare away investors

GBP/USD is attempting to stage a rebound heading into the new week. It has been a quiet session in Asia and the lack of meaningful data is pointing to a quiet session ahead. The pair has recently found support around 1.3868 but is still struggling to get back above a long-term ascending trendline.

The 4-hour chart is showing positive momentum going into the European session, with the stochastic oscillator bouncing off the 20 line after the pullback seen at the end of last week. Also, the 20-period moving average has just crossed over the 50-period MA for the first time since June 3rd which is also a sign that a bullish breakout may be in the works. That said, this crossover area could also act as a barrier in the short-term, which shows possible short-term resistance arising at 1.3930.

GBP/USD 4-hour chart

Fundamentally, there are still some headwinds for the Pound but it doesn’t seem to be fazing GBP buyers. On the one hand, the Delta variant continues to spread around the UK bringing up the average infection rate to its highest level since February, prompting Germany to ban travelers arriving from the UK whilst France is seeking a mandatory quarantine on arrival.

There are also political dramas with the health secretary having to resign after breaking social distancing rules and Brexit issues remain unresolved. Additionally, the Bank of England offered a dovish message last week, which saw the Pound come under a little pressure as investors were expecting the BoE to follow in the steps of the Federal Reserve and offer a more hawkish view.

Heading into this week, focus is going to be on the NFP data on Friday which will play an important role in USD performance, conditioning the momentum in GBP/USD. Investors will be looking for a strong NFP reading to confirm their suspicions that the Fed will need to act sooner than later and taper its easing program, which will be a bullish signal for the US Dollar. Alternatively, a weaker reading would likely offer GBP/USD some support on the back of Dollar weakness. There is also some UK data out this week but it is outdated and will likely have little impact on the markets.

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— Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin