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GBPUSD Bearish Pennant Hints at More Downsides


The GBPUSD pair is up slightly as traders react to news that the UK will extend a series of loans as the economy continues to suffer from the impact of the virus. The pair is up by 0.27% and is trading at 1.2950, which is higher than last week’s low of 1.2764.

According to the Financial Times, the UK will extend its loan programs to businesses as Rishi Sunak continues to support businesses. He will announce four loan schemes to help companies deal with the virus. These loans have already provided more than £53 billion to companies. Also, the report came as the UK’s chief medical officer warned that the virus could spread more in winter. In the statement, he said:

“The trend in the UK is heading in the wrong direction. We are at a critical point in the pandemic. We are looking at the data to see how to manage the spread of the virus ahead of a very challenging winter period.”

Meanwhile, the GBPUSD is reacting mildly to the likelihood of a no-deal Brexit. This month, talks between the EU and UK ended without a deal. Now, the two sides have a few weeks to prevent a no-deal scenario.

Separately, the pair is likely to react mildly to the Federal Reserve members testimony to congress. That is because the bank has already signalled that it will not hike or lower rates in the near term.

GBPUSD technical outlook

The daily chart below shows that the GBPUSD pair has dropped sharply from its YTD high of 1.3475. The pair is now trading closer to the 23.6% Fibonacci retracement level. It is also slightly below the 20-day and 10-day exponential moving averages. Most importantly, the pair seems to be forming a bearish flag pattern that is shown in purple.

That means that the current bounce is just a pullback. As such, I suspect that the pair will move back and retest the support at 1.2875. In the near term, I see the pair resuming the downward trend and retesting the 38.2% retracement at 1.2685. On the flip side, a move above 1.3000 will invalidate this trend.

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GBP/USD technical chart

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