Daily Market Recap - GBPUSD

The British Pound took a hit on Tuesday, breaking down below the 1.23 level as renewed uncertainty and risk-off sentiment overtook the markets. Selling appetite picked up in the afternoon, with investors starting to bring back Brexit concerns from pre-coronavirus days.

As a point of reference, the pound is already witnessing its largest annual drop against the USD since 199, standing at -7.3 percent at the time of writing. The Brexit negotiations have the potential to amplify the drop further as the UK appears unwilling to move its self-imposed deadline of concluding the talks by the end of the year.

At it stands, many analysts have redefined their expectations towards a messy resolution to the final Brexit divorce terms, which will likely have negative consequences on the pound. Should there be no agreement reached, the UK will have to default onto trading terms set by the WTO in its relations with the EU, meaning tariffs and quotas where there are none today.

The UK will have until the end of June to decide whether to request an extension. As the preliminary deadline fast approaches, Neil Jones from Mizuho Bank has suggested a target price somewhere below 1.20 on the GBPUSD rate, with other analysts predicting even lower targets.

From a technical perspective, the GBPUSD maintains its overall bearish trading pattern. The return to levels above 1.30 may be put off for the short term, with a rising USD pressuring heavily the pound. Currently, the pair is holding firm above the 1.227 support level. A breach at this point may send the pair down towards the 1.20 psychological mark and by extension, the 2016 low of 1.190. In the coming sessions, the GBPUSD will likely continue to depreciate, supported by the ample room in the RSI before it enters the oversold territory.

(Chart Source: Tradingview 21.04.2020)

Looking ahead, traders should, and are probably already looking at, increases in infection rates by the coronavirus in order to help determine the demand for the USD. Impending questions over the desired level of liquidity of the greenback in the markets, after multiple rounds of stimulus, may trigger a reversal in fortune for the British Pound.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.