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GBP/USD: Three reasons for the pound’s plunge

GBP/USD has dropped to fresh six-month amid recession fears. Weak BRC retail sales exacerbate the pound's pounding. Comments by Ireland's finance minister also weigh.
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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 has dropped to fresh six-month amid recession fears.
  • Weak BRC retail sales exacerbate the pound’s pounding.
  • Comments by Ireland’s finance minister also weigh.
  • Tuesday’s daily chart points to near oversold conditions on GBP/USD.

Sterling has been unable to enjoy any solace – Bears are breaking the pound as Brexit weighs on several fronts. Here are the three straws that have broken the pound’s back.

1) Bleak BRC figures

The British Retail Consortium has reported an annual fall of 1.6% in like-for-like retail sales. The report by the industry body – that precedes the official consumption report – was expected to stand at 0%. Moreover, BRC has accompanied the report by the word “bleak” regarding the current situation and said that wage growth is not reflected at the till.

2) Contraction expected in the second quarter

After last week’s purchasing managers’ indices for June showed stagnation in the second quarter, a survey by Bloomberg took another step forward in drawing a dark picture. Economists surveyed by the media outlet are predicting the UK economy squeezed by 0.1% in the previous quarter, down from 0% in the previous poll.

3) Ireland is worried

Paschal Donohoe, Ireland’s finance minister has said that the prospect of a disorderly Brexit is now a “significant risk.” On the other hand, the usually calm minister remains confident that the new leadership in the EU will continue backing Ireland in the next round of Brexit talks. The pound tends to suffer when the odds of a no-deal exit are on the rise.

The trio of troubles has pushed GBP/USD out of its tight range above 1.2500 and to a new low of 1.2458 – the lowest since early January. The 2019 trough is 1.2445. If cable slips below that level, it will reach prices last seen in April 2017 – more than two years ago.

A few pips of the fall can also be attributed to the US dollar which is edging higher across the board. However, the moves against the euro and the yen are meager in comparison to those against the pound.

Broader markets await the all-important testimony from Fed Chair Jerome Powell on Wednesday. Powell will speak already today but is unlikely to touch on monetary policy.

Speculation about Brexit and the Fed will likely dominate price action later in the day. The Conservative leadership contest continues with both Boris Johnson and Jeremy Hunt likely to comment on Brexit – the No. 1 topic.

GBP/USD Technical Analysis

GBP USD technical analysis July 9 2019

We zoom out to the daily chart given the fresh lows. The Relative Strength Index is just above 30 – currently shy of oversold conditions. Momentum remains to the downside and the pair is trading well below the 50, 100, and 200-day Simple Moving Averages.

The 2019 low of 1.2445 is the next support line to watch. The next lines already date to March and April 2017. These include 1.2360, 1.2305, and 1.2100.

Looking up, the December 2018 trough of 1.2475 is of interest, and it is followed by the June low of 1.2505. Next, we find 1.2560 which was a low point in May and 1.2605 which worked as both support and resistance in recent weeks.

The Fed model compares the return profile of stocks and US government bonds.