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GBP/USD Forecast: Brexit Recession Fears Are Becoming Real

GBP/USD is struggling around 1.2100 after a dismal GDP report. Concerns over Brexit and trade are likely to set the tone for the day. Friday's four-hour chart is pointing to additional falls.
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FXStreet is the leading independent portal dedicated to the Foreign Exchange (Forex) market and was founded in 2000. The website offers a wide range of tools and resources: 24/5 currency news, real-time economic calendar, advanced rates and charts, educational webinars, analysis reports, forecasts, Learning Center, newsletters, industry services, FX customizable studies… As its distinctive trademark, the portal has always been proud of its unyielding compromise to provide neutral and unbiased information and to enable its users to take better and more confident decisions. FXStreet has managed to gain the collaboration of the entire Forex industry, from individual professionals and small companies right up to Forex Brokers and Investment Banks. FXStreet covers the FX Market 24/5: an expert team of journalists, traders and economists picture what the market is doing and what is happening as it happens. Besides the main website in English, the portal is available in 16 other languages (English, Japanese, Simplified Chinese, Traditional Chinese, Spanish, Russian, Arabic, Turkish, Indonesian, Portuguese, German, French, Italian, Hungarian and Vietnamese, Korean and Catalan). FXStreet was short listed as “Best e-FX initiative of the year (vendor)” for the FX Week e-FX Awards 2010.

  • GBP/USD is struggling around 1.2100 after a dismal GDP report.
  • Concerns over Brexit and trade are likely to set the tone for the day.
  • Friday’s four-hour chart is pointing to additional falls.

Blame it on Brexit or call it temporary – the UK has squeezed for the first time since 2012 and an outright recession is a real risk. The UK reported Gross Domestic Product (GDP) dropped by 0.2% in the second quarter, worse than expectations – which foresaw stagnation. The downfall in the second quarter followed a robust 0.5% expansion in the first one – due to stockpiling ahead of the original Brexit date of March 29th. The payback quarter has now hit harder than optimists had hoped.

GBP/USD has dipped below 1.2100 but fell short of the 2019 low of 1.2075. Nevertheless, the data do not bode well for the economy – especially the 1.4% yearly contraction in manufacturing – a sector that was supposed to benefit from the lower sterling exchange rate.

The figures have temporarily taken attention away from politics. The British press is speculating what PM Boris Johnson may do in case he loses the confidence of Parliament. Johnson and Dominic Cummings – senior adviser and mastermind of the Vote Leave campaign – may be contemplating bypassing Parliament by setting elections for after Brexit. The deadline is currently October 31st and some suggest Brits could go to the polls on the following day – November 1st.

The House of Commons is currently enjoying the summer break and tensions are already high ahead of its return on September 3rd.

On the other side of the pond, trade tensions remain elevated as the US has refused to grant licenses to US companies to restart supplying materials to Huawei – the Chinese telecom giant. The administration’s step is a response to China’s decision to halt purchases of American agrifoods and to China’s devaluation of the yuan.

The People’s Bank of China has lowered the renminbi’s value once again, but by less than markets anticipated. Trump has expressed his desire for a weaker dollar, tweeting that he is “not thrilled” by its current strength.

The greenback has been weakening alongside the falling US bond yields – which reflect growing chances of the Federal Reserve cutting interest rates again in September.

With UK GDP out of the way, politics on both sides of the Atlantic return to center stage for cable traders.

GBP/USD Technical Analysis

GBP USD technical analysis chart August 9 2019

GBP/USD has dropped below the 50-day Simple Moving Average on the four-hour chart once again. Momentum is leaning lower and the currency pair has also lost the uptrend support line that is part of the channel it was trading within.

All in all, the chart points to further falls.

The next support line is 1.2075 – the 2019 trough and the lowest since January 2017. Below the round number of 1.2000, support awaits at 1.1985 and 1.1866, which have both been flash crash lows around the end of 2016 and in early 2017.

Some resistance awaits at 1.2135 which provided support earlier this week. 1.2210 is the weekly high, and 1.2250 held GBP/USD down after last week’s crash. Next, we find 1.2380 and 1.2420.

Equities Contributor: FXStreet

Source: Equities News