The GBPUSD is trading lower this afternoon after Fed Chair Powell’s comments lifted the US Dollar, reinforcing the bearish impact of the data that showed the UK’s economy contract 2.0% in the first quarter.
Fed Chair Jerome Powell gave remarks at an event this afternoon and hinted that the Fed was willing to take additional steps to hasten the pace of recovery of the US economy. The US Dollar was boosted by these comments, allowing it to extend its advance against the Cable which was hit by this morning’s dismal GDP data.
UK GDP for Q1 2020 fell 2.0% in what is the most significant drop since Q4 2008, immediately after the onset of the global financial crisis of that year. Today’s contraction has captured the effect of the coronavirus pandemic, which triggered a drop in manufacturing and services output as lockdowns and mass hospitalizations of infected workers disrupted business activity in the UK.
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GBPUSD Technical Outlook
Today’s drop in the GBPUSD continues the decline below the ascending channel following the breakout. It also completes the breakdown of the neckline of the completed double top pattern of April 2020, with price peaks that were rejected by the 200-EMA dynamic resistance.
The completion of the double top sets the stage for a push towards the 1.22006 support, located a few pips below the current price of 1.22246. A breakdown of this support opens the door towards the 1.21210 support. The projected price move from the double top could target the 1.20005 or 1.18810 support levels, depending on the fundamentals affecting the Cable and the USD for the week. On Thursday, Bank of England Governor Andrew Bailey is due to participate in a webinar and may make comments that may impact the pair.
A flipside response by the GBPUSD would have to retest the broken neckline of the double top and the 1.23695 resistance. If price advances beyond this area, a retest of the 200-EMA and the lower channel border would be on the cards.
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