- GBP / USD is struggling just south of the 1.3600 level despite the announcement of more support for UK companies.
- Prices have formed a short-term pennant structure that is subject to a breakout.
He GBP/USD has struggled to regain control over the 1.3600 level on Thursday after England and other parts of the UK entered a tighter lockdown in an attempt to re-control the spread of Covid-19. Currently, the pair is trading at 1.3570, only slightly higher on the day and only around 20 pips above the lows.
UK government announces increased business support
The UK Chancellor of the Exchequer announced on Tuesday one-time supplemental grants for retail, hotel and leisure businesses worth up to £ 9,000 per property with the aim of helping businesses through spring. The additional support comes after British Prime Minister Boris Johnson’s announcement last night that Britain will enter a tighter lockdown until at least mid-February to help control the virus.
The dollar is unfazed by ISM manufacturing PMI data
The USD did not move immediately after the ISM manufacturing PMI figures released on Tuesday. The numbers came out much stronger than expected; the general index rose to 60.7, well above expectations of 56.6 and 57.5 last month. Meanwhile, the subscripts were also strong across the board; Prices paid rose to 77.6 versus expectations for a 65.7 rise from 65.4 last month, its highest number in nearly three years, while new orders and employment were also strong.
Tuesday’s data is likely to add more wind behind the sails of US inflation expectations since early December, 10-year breakout pairs have risen from less than 1.8% to around 2.0% (its highest level since 2018) and many think more increases are ahead.
In terms of how this is likely to translate into GBP / USD price action; Given that the Fed has already indicated that it will be behind the curve when it comes to dealing with inflation, further USD weakness is likely (amid expectations that the Fed will not act early to avoid a drop in the purchasing power of the US dollar). , which is likely to be a tailwind for GBP / USD in 2021.
Looking to the future
The dollar side will be dominated by US politics (the outcome of the Georgia Senate elections on Tuesday and Thursday’s certification of the November presidential elections in Congress) and US data ( December ISM service numbers will appear Thursday, followed by December NFP numbers.)
Meanwhile, on the sterling side of the equation; The UK Prime Minister will address the nation for the second day in a row, likely to discuss the recently announced new business support measures, ahead of testimony from Bank of England Governor Andrew Bailey in front of the Select Committee of the Treasury on Wednesday at 2:30 p.m. in the bank’s latest financial stability report. Of course, any comments on the policy will be noted.
GBP / USD forming a short-term pennant
GBP / USD has formed a pennant structure for the last 24 hours or so (see chart below). A break to the upside of the 1.3600 level would technically open the door for a move back towards resistance at 1.3620 (the December 17-24 highs). A break above this level would indicate a possible bullish move towards recent multi-year highs around 1.3700. Conversely, a break to the downside opens the door for a move lower towards the 1.3500 level and even a test of the pair’s 21-day moving average at 1.3458.