GBP/USD price breaks support as BofA says sterling is now an emerging market currency

on Jun 25, 2020
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  • The sterling should be regarded as an emergency market currency, not a major, the BofA’s analyst says
  • GBP/USD price broke below the $1.25 handle yesterday on a broader dollar strength
  • The sellers, who are in control of the price action, will be targeting $1.2320 and $1.2270 next

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GBP/USD moved below the $1.25 mark yesterday, a bearish market development that has been confirmed today with the pound’s inability to recover. Separately, Bank of America’s currency analyst says that the pound should be regarded as an emerging market currency.

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Fundamental analysis: Pound is not a major anymore – BofA

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GBP/USD suffered a strong hit yesterday that pushed the pair below the critical $1.25 short-term support. The dollar attracted attention in the risk-off trading sentiment to advance against the pound. 

In the meantime, BofA currency analyst Kamal Sharma says that sterling should be classified as an emerging market currency, rather than a major.

“The pound increasingly resembles the more liquid emerging market currencies rather than a core G10 currency,” she wrote. 

“We believe sterling is in the process of evolving into a currency that resembles the underlying reality of the British economy: small and shrinking with a growing dual deficit problem similar to more liquid [emerging market] currencies.”

The pound has been very volatile recently, an element that is usually associated with emerging currencies. Moreover, it tends to move lower in times of higher risk. 

“Cable is increasingly a risk-sensitive currency trade and today that’s led to a 26-pip drop to a session low of 1.2393,” Forex analyst Adam Button said. 

Technical analysis: Critical support broken 

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GBP/USD broke below the $1.25 mark yesterday to invite increased selling pressure before the end of the week. The pair moved south of $1.25 last week before the buyers returned to the “crime scene” to retest the broken support. This zone consists of the 100-DMA and the horizontal resistance, former support. 

GBP/USD daily chart (TradingView)

The retest ultimately failed, which is now likely to pave the way for dollar gains against the pound. 

“On the daily chart, cable is consolidating in the 1.2320 to 1.2540,” added Button. 

Below $1.2320, the zone around $1.2270 should play an important role. The intra weekly target for the sellers is $1.2070, which also represents a 3-month low for the pair. 

Summary

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GBP/USD moved lower yesterday on the broader dollar strength. The pair is now trading comfortably below the key short-term support around the $1.25 mark. Separately, BofA currency analyst Kamal Sharma says that the pound should be seen as an emerging market currency, rather than a major.

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