The chaos of the 2008 crisis, that began with the fall of Lehman Brothers, is similar to the current pandemic crisis. Many financial market traders who still have strong memories of unprecedented trading losses in one day and this tide of uncertainty are pushing for a flight to safety.
Although the number of new coronavirus infected cases in the UK and US is still increasing, the financial markets have temporarily stopped pricing in the economic impact of the pandemic, as Pound has returned to trading prices in the range of 1.2150-1.2500 against the US Dollar. As it was a long holiday weekend, the USA500’s main equity index has now rallied more than 9% so far this month and UK100 has bounced back from the red and is showing some signs of recovery.
US500 & UK100 (Daily)
Historic reactions from the government and the BoE working together to try to secure employment, guarantees for loans to small businesses and interest rates cut to a low of 0.1%. And in the US too, the additional $2.3 trillion aid package is unprecedented , providing loans and subsidies for American households, financial support for businesses affected by the pandemic and cutting interest rates to near zero.
During times of uncertainty, the USD is seen as a safe-haven currency with strong demand. Conversely, a few months after Brexit and with trade agreements pending, the Pound oscillates, becoming a risky asset.
Starting March 9, the GBPUSD pair has traded in a very extraordinary range approaching 18 cents (1,790 pips) from the peak price to the valley. The peak price was 1.3199 on March 9 and fell to 1.1409 in just the next ten days, while the USD posted its strongest value in more than 30 years against Sterling. This volatility was triggered by the financial market panic against Covid-19 which began to spread throughout the world.
GBPUSD, H4.After rising at the end of March, the GBPUSD pair has been consolidating for 2 full weeks in the transaction range of 1.2150 – 1.2500, around the 61.8% Fib. level. In a 4-hour period, the 200-SMA became a dynamic Resistance holding the rate of GBPUSD up, only a few points below the 1.2500 key level. Last week it closed lower at 1.2445 and stuck to the ascending trendline. During the 2-week consolidation period, the RSI indication showed a break below the overbought level at 58.56, and while we cannot expect much during the consolidation period for the MACD to measure price movements, the histogram is still above the neutral zone, but shows lack of momentum.
Given the Easter holiday period, the markets are not very active, and the movement earlier this week may not have significant volatility. The pair still tends to remain in the range of bound prices. On the 1-hour chart, the price started declining at the close of 1.2445, but has not given a strong indication. The temporary Support levels are at the price of 1.2400; 1,2365; 1.2325 with upside barriers at the price of 1.2500; 1.2575 and 1.2625.
The British Pound could have followed the previous advance, as it made cautious positive progress against the US Dollar this week. If GBPUSD pushes above 1.2500, it could expose previous lows from early March and could retest Resistance levels 1.2575 to 1.2625. Otherwise, a pullback could turn attention on the immediate 1.2440 Support level, as investors consider the possibility of a reversal.
Ady Phangestu
Market Analyst – HF Educational Office – Indonesia
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