- The discovery of a new variant of COVID-19 in South Africa that could be more difficult to combat spurred the market mood of risk aversion.
- The British pound fell due to the new variant COVID-19, although it ended the day higher, with an increase of 0.09%.
- The upward movement of GBP / USD is caused by the weakness of the US dollar.
The GBP recovers from earlier losses during the day, despite market risk aversion sentiment clouding financial markets due to the discovery of a new variant of COVID-19 in South Africa. At the time of writing this report, the par GBP/USD it is trading at 1.3341, up 0.14%.
In the overnight session, market sentiment waned when South Africa announced the discovery of a new variant of COVID-19.
The World Health Organization (WHO) said it is a variant of concern, presenting a threat that could confuse countries’ efforts to curb the spread of COVID-19. According to sources cited by CNBC, “that the variant contains a unique constellation of more than 30 mutations in the peak protein, the component of the virus that binds to cells. This is significantly more than those of the delta variant. “
The mutations found in the B.1.1.529 COVID-19 variant called omicron are related to resistance to antibodies, which affects the behavior of the virus with respect to vaccines, treatments and transmissibility. According to Tulio de Oliveira, a scientist from South Africa, quoted by CNBC, said that the variant contains around 50 mutations.
The COVID-19 issue aside, the latest Brexit development could weaken the British pound. On Friday, UK Brexit Minister David Frost said that “although we would still like to find a negotiated solution with the EU on the Northern Ireland Protocol, the gap between our positions is significant and we are ready to use the article 16 “. For his part, his counterpart Maros Sefcovic said that “a decisive push was needed to ensure predictability” in the case of drug supply.
Returning to GBP / USD, in the overnight session, the pair remained subdued, despite risk aversion that weakened most risk-sensitive currencies, against their safe-haven peers except of the US dollar. The British pound fell as low as the daily S2 pivot point at 1.3272 when the coronavirus news broke but rebounded, recovering to the 1.3300 level.
That said, GBP / USD traders should focus on Brexit developments, the Bank of England, and the new variant of the coronavirus. On Friday, the GBP / USD bulls held their position; However, coronavirus developments over the weekend could worsen market mood conditions that could favor USD bulls.
GBP / USD Price Forecast: Technical Outlook
The GBP / USD pair continues to trade within a descending channel roughly 350 pips wide. The drop witnessed in the session on risk aversion briefly touched the lower trend line of the one mentioned above. However, it rejected the move to the downside, forming a candlestick chart called a “hammer” on the daily chart, indicating that the bulls regain control in the short term. However, downward sloping daily moving averages (DMAs) are above the pair’s price, reinforcing the downtrend.
In the result of a corrective move to the upside, the swing low of November 12 (support turned resistance) at 1.3352 would be the first resistance. A break out of that level would expose crucial resistance areas such as the September 29 cycle low support, now resistance at 1.3411, followed by the November 18 high at 1.3513.
On the other hand, the 1.3300 level would be the first support, which once broken could pave the way for further losses, finding key support levels on its way down. The next support would be the November 26 low at 1.3278, followed by the 1.3200 figure.