- French President Macron says that trade talks with the UK are “going to become more tense because [the British] are very hard," which helps GBP bears
- USD in demand once again as a safe-haven asset
- The bears are eyeing $1.2690 first, although a trip towards $1.2550 is not to be ruled out
GBP/USD trades 0.4% lower today as the foreign exchange market continues to be dominated by the US dollar. Today’s move lower has now almost completely erased gains from Friday, when the sterling moved more than 70 pips higher against the USD.
Fundamental analysis: Dollar firmly in control
The US dollar is feeling a lot of love from investors as negative headlines are weighing on the market mood. Media reported about the higher number of coronavirus infections in northern Italy, which is hurting the EUR, but also not helping the GBP/USD due to the dollar’s status as a safe-haven currency.
Besides the dollar strength, the investors are increasingly optimistic that the United Kingdom’s departure from the European Union won’t be as smooth as previously thought. Yesterday, the French President Macron said he is “not sure” that a trade deal will be struck before the end of the year.
“I am not sure that an agreement will be reached between now and the end of the year. Anyway, it is going to become more tense because [the British] are very hard,” said Macron.
These statements coupled with the increased demand for US dollars are driving GBP/USD lower.
“The pair remained capped below the key 1.30 psychological mark amid persistent fears that Britain might crash out of the European Union at the end of the transition period later this year,” said FX analyst Haresh Menghani.
Technical analysis: Bears have the upper hand
GBP/USD is now moving in a clear downtrend as the bulls are simply unable to sustain any positive momentum. Watching from the sidelines, it looks like every bull run is just an opportunity to get on the short side.
Given the most recent price developments which resulted in another failure of bulls to take the price higher, we may be ready to move lower. Looking at the chart below, the price action looks like it wants to move lower and test the 100-DMA at $1.2690.
The price action now looks almost certain to close below $1.2950, where the 200-DMA currently sits. This will only increase the selling pressure on GBP as it is a bearish development. Moreover, the bears are now trading below the ascending trend line that provided further support for them around $1.2950.
If the bearishness persists and we finally get to test the 100-DMA for the first time since October last year, a change for a trip to $1.2550 becomes realistic in the short-term too. This is a very important confluence support zone for the sterling bulls, which is likely to facilitate interest in buying GBP/USD down there.
Macron’s statements, together with the overall demand for the US dollars, are pushing GBP/USD lower again. The coronavirus outbreak in Europe is fueling investors’ interest in USD as a safe-haven asset. The bears are in firm control now and a trip towards $1.25s is not to be dismissed at this stage.